Key changes in the chip market - China cuts off access to gallium and germanium❗

The semiconductor war continues, with the US and China outdoing each other in introducing export restrictions aimed primarily at the two countries' new technology sectors. From 1 August (i.e. tomorrow), new export restrictions will come into force in China, which will make it more difficult to access the key elements for the semiconductor market - gallium and germanium.

What will change? 

According to new recommendations from the Chinese government, any exporter of these elements will from now on have to obtain special trade approval for the transport of these elements, including details of the other party to the transaction (end user) and the production destination of the elements.

While such trade connections will still be possible, market access to key components will be significantly impaired, which may affect the margins of companies in this sector and the revenues themselves. 

The global semiconductor market is diversifying

The US-China trade conflict has wide-ranging implications, one of which is the ongoing geographical diversification of the chip sector. 

The US is now seeking to encourage entrepreneurs to locate their ventures within the State, aided by the introduction of the CHIPS and Science Act, bringing nearly $52bn into the chip market, of which $39bn is to be a fund to encourage companies to concentrate innovation within the US. 

In the Eurozone itself, innovation incentive packages have also been introduced in this area. Worth €43bn, the incentives are expected to increase EU's share of the semiconductor market to 20% (by 2030). China's export restrictions on gallium and germanium have worried the EU, which is now pressing European companies to increase production of other components, including those related to aluminium and zinc. 

What are gallium and germanium?

Source: Tellimer Research

Both elements are key components in the production of smartphones, laptops, solar panels and military infrastructure. Germanium primarily has anti-radiation properties, making it an important component for the space industry. The element also exhibits good electrical and thermal conductivity in integrated circuits. Gallium itself is used in energy-intensive semiconductors used in the LED installation sector, among others. 

Both elements are officially recognised in the EU and the US as key elements for global chip production. According to official CRMA data, China accounts for 80% of gallium supply and 60% of germanium supply respectively (in Europe, only one facility is capable of producing gallium with adequate chemical purity). 

China is a key market

According to the Semiconductor Industry Association, China accounted for US$180 billion worth of orders in the semiconductor market last year, or nearly a third of the global semiconductor trade value (US$574.1 billion). Further trade restrictions are strongly affecting companies in the sector that have a large share of their revenues from China. In the US, these are primarily Nvidia (NVDA.US), Qualcomm (QCOM.US) and Intel (INTC.US). Source: FactSet