Apple CEO Tim Cook speaks at an event at the Apple Park campus in Cupertino, California, on Sept. 7, 2022. At a presentation dubbed Far Out, Apple is set to unveil the iPhone 14 line, a fresh slate of smartwatches and new AirPods.
Nic Coury | Bloomberg | Getty Images
Apple will likely launch an iPad with a folding screen in 2024, analyst firm CCS Insight said on Tuesday, forecasting the U.S. technology giant will begin experimenting with foldable technology soon.
CCS Insight published its annual predictions report on Tuesday in which the group’ analysts make forecasts about future products and trends.
In the latest report, CCS Insight predicted Apple would launch a foldable iPad in two years’ time rather than start with a foldable iPhone.
This is contrary to other smartphone makers like Samsung which have launched foldable smartphones rather than tablets.
“Right now it doesn’t make sense for Apple to make a foldable iPhone. We think they will shun that trend and probably dip a toe in the water with a foldable iPad,” Ben Wood, chief of research at CCS Insight, told CNBC in an interview.
“A folding iPhone will be super high risk for Apple. Firstly, it would have to be incredibly expensive in order to not cannibalize the existing iPhones,” Wood added.
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The analyst said that a foldable iPhone would likely need to cost around $2,500. Apple’s iPhone 14 Pro Max with the largest storage, which is the most expensive model currently, costs around $1,599.
Wood also said that if Apple had any technical issues with the foldable phone, then it would be a “feeding frenzy” with critics attacking Apple for the problems.
Still, Apple has “no option but to react because the trend toward foldables is gathering momentum,” Wood said, hence the company will begin with an iPad.
He said it would give Apple a chance to learn how to implement and scale foldable screen technology as well as “breathe new life” into the iPad range.
Apple was not immediately available for comment when contacted by CNBC.
There have been a number of rumblings about Apple’s intentions with foldable screen products. Earlier this year, market research firm Display Supply Chain Consultants said Apple is unlikely to enter the foldable smartphone market until 2025 at the earliest. However, the company said that Apple is exploring foldable technology for displays of around 20 inches in size. That could be focused on a new foldable notebook product, the market research company said.
Predictions about a foldable iPhone meanwhile have been around for at least four years. Last year, Ming-Chi Kuo of TF International Securities, a prominent Apple analyst known for his credible predictions, said the company could release an iPhone with a folding screen in 2024.
Apple to combine 5G and processor in chip
CCS Insight also predicts that Apple will continue investing in its own chip design.
Currently, the Cupertino giant designs its own custom chips for iPhone and iPad. It relies on U.S. chipmaker Qualcomm for modems that allow these devices to connect to mobile internet networks for 5G connectivity.
However, CCS Insight said that Apple is likely to integrate its own 5G modem into the A series of processor for a “single-chip” solution for iPhones in 2025.
Apple acquired Intel’s modem business in 2019. That led to speculation that the tech giant would very quickly ditch Qualcomm and use its own modems in its devices. However, that hasn’t happened yet.
Kuo of TF International Securities said in June he expects the company to continue to use Qualcomm chips for iPhones released in 2023.
Wood said that Apple has been “ramping up in-house capabilities” so it can use its own modems in iPhones.
“They (Apple) have been shooting for this target for years. They acquired the assets from Intel of the modem unit, they have been working hard to ramp that up, they are very keen to make sure they keep growing their control points they have,” Wood said.
“They don’t want to have to keep paying a third party supplier for their technology.”
Chinese President Xi Jinping proposing a toast at the welcome banquet for leaders attending the Belt and Road Forum at the Great Hall of the People on April 26, 2019 in Beijing, China.
Nicolas Asfouri | Getty Images
Xi Jinping once declared China should “prioritize innovation” and be on the “cutting-edge (of) frontier technologies, modern engineering technologies, and disruptive technologies.”
Since that speech in 2017, Beijing has spoken about technologies it wants to boost its prowess in, ranging from artificial intelligence to 5G technology and semiconductors.
Five years since Xi’s address at the Communist Party of China’s last National Congress, the global reality for the world’s second-largest economy has transformed. It comes amid an ongoing trade war with the U.S., challenges from Covid and a change in political direction at home that have hurt some of Beijing’s goals.
On Sunday, the 20th National Congress — held once every five years — will begin in Beijing. The high-level meeting is expected to pave the way for Xi to carry on as head of the Communist Party for an unprecedented third five-year term.
Xi will take stock of China’s achievements in science and technology, which have yielded mixed results.
“I agree it is a mixed bag,” Charles Mok, visiting scholar at the Global Digital Policy Incubator at Stanford University.
He said China sets “lofty” goals as it targets to be the best, but “they are limited politically and ideologically in terms of the strategies to reach them.”
Private tech enterprises are faltering under stricter regulation and a slowing economy. China is far from self-sufficient in semiconductors, a task made harder by recent U.S. export controls. Censorship on the mainland has tightened as well.
But China has made some notable advancements in areas such as 5G and space travel.
U.S.-China tech war
“It would seem that Xi underestimated the challenges China faced in overcoming its reliance on foreign, mostly U.S. firms…”
Paul Triolo
technology policy lead, Albright Stonebridge
Zero Covid
Semiconductor self-sufficiency
Beijing put a lot of focus on self-sufficiency in various areas of technology, but especially on semiconductors. The drive to boost China’s domestic chip industry was given further impetus as the trade war began.
In its its five-year development plan, the 14th of its kind, Beijing said it would make “science and technology self-reliance and self-improvement a strategic pillar for national development.”
One area it hoped to do so was in semiconductors.
But a number of restrictions by the U.S. has put a dent in those ambitions.
“It would seem that Xi underestimated the challenges China faced in overcoming its reliance on foreign, mostly U.S. firms, in key ‘core’ or ‘hard’ technologies such as semiconductors,” Paul Triolo, the technology policy lead at consulting firm Albright Stonebridge, told CNBC.
“He also did not account for growing U.S. concern over semiconductors as foundational to key technologies.”
Looking ahead, the latest package of U.S. controls will make a huge dent in China’s technology ambitions.
Paul Triolo
technology policy lead, Albright Stonebridge
Things did not look as “bleak” for China’s semiconductors in 2017 as they do now, Triolo said.
“Looking back, Xi should have redoubled efforts to bolster China’s domestic semiconductor manufacturing equipment sector, but even there, a heavy reliance on inputs such as semiconductors has made it difficult for Chinese firms to reproduce all elements of those complex supply chains.”
The Biden administration unveiled a slew of restrictions last week that aim to cut China off from key chips and manufacturing tools to make those semiconductors. Washington is looking to choke off supply of chips for critical technology areas like artificial intelligence and supercomputing.
Analysts previously told CNBC that this will likely hobble China’s domestic technology industry.
That’s because part of the rules also require certain foreign-made chips that use American tools and software in the design and manufacturing process, to obtain a license before being exported to China.
Chinese domestic chipmakers and design companies still rely heavily on American tools.
Chipmakers — like Taiwanese firm TSMC, the most advanced semiconductor manufacturer in the world —are also dependent on U.S. technology. That means any Chinese company relying on TSMC may be cut off from supply of chips.
Meanwhile, China does not have any domestic equivalent of TSMC. China’s leading chip manufacturer, SMIC, is still generations behind TSMC in its technology. And with the latest U.S. restrictions, it could make it difficult for SMIC to catch up.
So China is still a long way from self-sufficiency in semiconductors, even though Beijing is focusing heavily on it.
“Looking ahead, the latest package of U.S. controls will make a huge dent in China’s technology ambitions, because the curbs on advances semiconductors,” Triolo said. The curbs will “ripple across multiple associated sectors, and make it impossible for Chinese firms to compete in some areas, such as high performance computers, and AI related applications such as autonomous vehicles, that rely on hardware advances to make progress.”
China’s tech crackdown
A major hallmark of Xi’s last five years is how he has transformed China into one of the strictest regulatory regimes globally for technology.
Over the last two years, China’s once free-wheeling and fast-growing tech giants have come under heavy scrutiny.
It began in November 2020 when the $34.5 billion initial public offering of Ant Group, which would have been the biggest in the world, was pulled by regulators.
That sparked several months where regulators moved swiftly to introduce a slew of regulation in areas from antitrust to data protection.
In one of the first regulations of its kind globally, Beijing also passed a law which regulated how tech firms can use recommendation algorithms, underscoring the intense tightening that took place.
Looking back to Xi’s 2017 speech, there were hints that regulation was coming.
“We will provide more and better online content and put in place a system for integrated internet management to ensure a clean cyberspace,” Xi said at that time.
But the pace at which regulations were passed and the scope of the rules took investors off guard, and billions were wiped off the share prices of China’s biggest tech companies — including Alibaba and Tencent — in 2021 and 2022. They have yet to recover from those losses.
Analysts pointed out that even though there were mentions about cleaning up the internet, the swift nature of regulation that subsequently swept across China was unlikely to have been anticipated — even by Xi himself.
“While I believe that in 2017, Xi had absolutely become focused on strengthening platform regulation, I very much doubt that the rapid-fire nature of… [the regulation] was pre-planned,” Kendra Schaefer, partner at Trivium China consultancy, told CNBC.
Five years ago, Xi said the government would “do away with regulations and practices that impede the development of a unified market and fair competition, support the growth of private businesses, and stimulate the vitality of various market entities.”
This is another pledge that appears not to have been met. China’s technology giants are also posting their slowest growth in history, partly due to tighter regulations. Part of the story, analysts say, is about Xi exerting more control over powerful technology businesses that were perceived as a threat to the ruling Communist Party of China.
“It is obvious that they are not supporting the growth of private businesses,” Mok said. “In my view, they have not succeeded.”
“Think of it that they are putting the Party agenda and total control as the top priority … No one can be successful unless the Party is successful in sustaining its dominance and total control.”
China’s successes from 5G to space
Despite the challenges, China has found success in the realm of science and technology since 2017. Space exploration has been a key focus.
In 2020, a Chinese moon mission concluded with its spacecraft returning back to Earth with lunar samples, a first for the country. That same year, China completed its own satellite navigation system called Beidou, a rival to the U.S.-government owned Global Positioning System (GPS).
Last year, China landed an un-crewed spacecraft on Mars and is planning its first crewed mission to the Red Planet in 2033.
China was also one of the leading nations globally to roll out next-generation 5G mobile networks, which promise super-fast speeds and the ability to support new industries like autonomous driving.
In electric vehicles, China has also pushed ahead. The country is the largest electric car market in the world and home to CATL, the world’s largest EV battery maker, which is looking to expanding overseas.
What next for Xi’s tech policy?
The regulatory assault on the domestic technology sector, which has slowed in recent months, will not go away entirely.
Even if regulatory actions are “moving into a new phase” in Xi’s third term, companies like Alibaba and Tencent won’t necessarily see the breakneck growth speeds they’ve seen in the past, Mok said.
“Even if they find their feet, it is not the same ground. They won’t see that growth, because if China’s overall GDP and economy growth is like what people are talking about now for the next several years … then why should they even outperform the whole China market?” Mok said.
Without a doubt, technology will continue to be a key focus for Xi over the coming five years, with a focus on self-sufficiency. China will likely continue to strive for success in areas Beijing deems as “frontier” technologies such as artificial intelligence and chips.
But Xi’s job in tech is now that much harder.
“As the U.S. continues to ratchet up controls in other areas of technology, and squeeze technology investments in China via outbound investment reviews, the overall innovation engine in China, heretofore driven by the private sector, will also begin to sputter, and the government will have to increasingly step in with funding,” Triolo said.
“This is not necessarily a recipe for success, except for manufacturing heavy sectors, but not for advanced semiconductors, software, and AI.”
The U.S. government has introduced some of its most sweeping export controls yet aiming to cut China off from advanced semiconductors. Analysts said the move could hobble China’s domestic chip industry.
Mandel Ngan | AFP | Getty Images
China’s ambitions to boost its domestic chip industry has likely become magnitudes more difficult and costly after the U.S. launched some of its most wide-ranging export controls related to technology against Beijing.
On Friday, the U.S. Department of Commerce introduced sweeping rules aimed at cutting China off from obtaining or manufacturing key chips and components for supercomputers, in what is seen as a huge escalation in tensions between Beijing and Washington in the technology sphere.
America argues that such advanced semiconductors can be used by China for advanced military capabilities.
“There is no going back to the way things were,” Abishur Prakash, co-founder of the Center for Innovating the Future, an advisory firm, told CNBC.
“With the latest action, the chasm between the U.S. and China has now expanded to the point of no return.”
Here are some of the highlights of the new U.S. rules:
Companies require licenses to export high-performance chips, usually designed for artificial intelligence applications, to China.
Even foreign-made chips related to AI and supercomputing, that use American tools and software in the design and manufacturing process, will require a license to be exported to China.
U.S. companies will be heavily restricted in exporting machinery to Chinese companies that are manufacturing chips of a certain sophistication.
“The latest chip rules are a sign that Washington is not trying to rebuild relations with Beijing. Instead, the U.S. is making it clear that it’s taking this competition more seriously than it ever has, and is willing to take steps that were once unthinkable,” Prakash said.
What impact will U.S. restrictions have on China?
Semiconductors are some of the most important technology products. They go into everything from smartphones to cars and refrigerators. But they’re also seen as key to military applications and advancing artificial intelligence.
As geopolitical tensions between China and the U.S. have ramped up in the past few years, technology, and in particular sensitive areas like chips, have been dragged into the battle.
Artificial intelligence, quantum computing and semiconductors are all areas China has identified as “frontier” technologies it wants to boost its domestic capabilities in. But the new U.S. rules will make that extremely hard, particularly in the area of chips.
“The U.S. has formally shifted its goal from outpacing China in the semiconductor industry to actively denying it access to advanced chips,” Pranay Kotasthane, chairperson of the high tech geopolitics program at the Takshashila Institution, told CNBC.
“China’s homegrown chip sector will be hobbled by these extensive controls.”
The nature of the supply chain
The reason why the U.S.’s export controls could be so effective is how they could touch several parts of the semiconductor supply chain, even those not directly based in America or controlled by American firms.
That comes down to the global nature of the chip supply chain but also how power and expertise is controlled by very few companies.
The United States, while strong in many areas of the market, has lost its dominance in manufacturing. Over the last 15 years or so, Taiwan’s TSMC and South Korea’s Samsung have come to dominate the manufacturing of the world’s most advanced semiconductors. Intel, the United States’ largest chipmaker, fell far behind.
Reinventing the wheel will be far more costly now (for China).
Pranay Kotasthane
Takshashila Institution
Taiwan and South Korea make up about 80% of the global foundry market. Foundries are facilities that manufacture chips that other companies design.
The U.S., however, still boasts strong companies in the area of design tools, many of which are used by other companies in the supply chain. For example, it’s unlikely that advanced chips manufactured by TSMC won’t have used American tools somewhere along the way. In this instance, the U.S. export restrictions to China will apply.
Washington has used this so-called foreign direct product rule before on the poster child of the Trump-era U.S.-China tech tensions — Huawei. Under those rules, Huawei was cut off from the most advanced chips that TSMC was manufacturing and that were designed for its smartphones. Huawei, which was once the number one player in the smartphone market, saw its handset business crippled.
But never has such a rule been used so widely by the U.S.
China will need to ‘reinvent the wheel’
Meanwhile, other countries could be under pressure to not ship certain pieces of equipment to China. For example, the latest rules mean companies will need to get licenses to ship machinery to Chinese foundries if those facilities are making certain memory chips or logic semiconductors of 16 nanometer, 14 nanometer or below.
The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.
China’s most advanced chipmaker, Semiconductor Manufacturing International Co. or SMIC, is currently making 7nm chips, but not on a huge scale. It is generations behind the likes of TSMC and Samsung which have a roadmap to make 2nm chips.
But to make chips of this sophistication on a large scale, with lower costs and more reliability, SMIC and other Chinese foundries will need to get their hands on a specific piece of kit called an extreme ultraviolet lithography machine. The Dutch firm ASML is the only company in the world capable of making this critical piece of machinery.
If it falls under the U.S.’s export restrictions or comes under pressure from Washington not to sell to Chinese companies, this could hamper progress among the country’s chipmakers.
ASML underscores the complexities of the semiconductor supply chain.
“Semiconductor production is a hyper globalised supply chain. Being cut off from this engine will mean that Chinese companies must ‘reinvent the wheel’ domestically. China’s semiconductor industry will need much higher capital and talent infusion to absorb this shock,” Kotasthane said.
But this will be an uphill climb.
Kotasthane said that China will be able to make advanced chips even without ASML’s machinery “but the yield will be far lower, meaning higher costs and lower reliability.”
Meanwhile, Chinese firms will have to rely on “lower-end” domestic alternatives for design tools, Kotasthane said, which they would typically have gotten from American and Japanese firms.
Washington’s latest rules also require any “U.S. persons” to obtain a license if they want to support the development or production of semiconductors at certain China-based manufacturing facilities. This effectively cuts off a key pipeline of American talent to China.
“Reinventing the wheel will be far more costly now,” Kotasthane said.
Nvidia has found success in China by selling automotive chips to the country’s electric car companies. But the U.S. semiconductor giant has been restricted from sending some products to China. So far, electric vehicle makers do not seem to be affected.
BEIJING — U.S. restrictions on Nvidia chip sales to China won’t affect Chinese electric car companies, as they’re using auto systems that don’t include the sanctioned products.
Chipmaker Nvidia’s shares have plunged around 13% this week after the company disclosed new U.S. restrictions on its exports to China, affecting about $400 million in potential sales in the current quarter.
In China, the Nvidia Drive Orin chip has become a core part of electric automakers’ assisted driving tech. These semi-autonomous driving systems are an important selling point for the companies in what has become a fiercely competitive market in China. Some automakers are also using Nvidia’s Xavier chip. Automotive is a relatively small but fast-growing part of Nvidia’s business.
However, the new U.S. restrictions target Nvidia’s A100 and H100 products — and these chips’ sales are part of the company’s far larger data center business. The products are graphics processors that can be used for artificial intelligence.
“There shouldn’t be any restrictions on Xavier and Orin, and Xpeng, Nio and others would continue to ship with those chips,” said Bevin Jacob, partner at Shanghai-based investment and consulting firm Automobility.
Jacob, however, did warn that there could be “close scrutiny” in the future on U.S. firms shipping chips relating to artificial intelligence and autonomous driving to China.
Xpeng declined to comment. Nio, Li Auto, Huawei and Jidu — a new electric vehicle brand backed by Baidu and Geely — did not respond to requests for comment.
The new U.S. rules are designed to reduce the risk of supporting the Chinese military, according to the U.S. government, Nvidia said in its filing with the Securities and Exchange Commission on Wednesday. But it’s unclear what prompted this specific policy move or what could drive future ones.
In another positive sign for the chipmaker, the U.S. will allow Nvidia to continue developing its H100 artificial intelligence chip in China, the company said Thursday.
“The U.S. government has authorized exports, reexports, and in-country transfers needed to continue NVIDIA Corporation’s, or the Company’s, development of H100 integrated circuits,” Nvidia said in a filing Thursday.
The company said second-quarter revenue for its automotive business was $220 million, up 45% from a year earlier.
“Our automotive revenue is inflecting, and we expect it to be our next billion-dollar business,” Nvidia CEO Jensen Huang said in an earnings call in late August, according to a StreetAccount transcript.
WeRide, an autonomous driving technology start-up, said in a statement that “there is no immediate impact from the ban.”
“We believe both the supply and demand side in the industry will work closely together to handle the constantly changing business environment to safeguard the continuous development of technology,” the company said in a statement to CNBC.
Pony.ai, another autonomous driving start-up, said it is not affected, as did automaker Geely.
Negative economic growth in the year’s first half may be a foreshock to a much deeper downturn that could last into 2024.
Stephen Roach, who served as chair of Morgan Stanley Asia, warns the U.S. needs a “miracle” to avoid a recession.
“We’ll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in,” Roach told CNBC’s “Fast Money” on Monday. “They haven’t kicked in at all right now.”
Roach, a Yale University senior fellow and former Federal Reserve economist, suggests Fed Chair Jerome Powell has no choice but to take a Paul Volcker approach to tightening. In the early 1980’s, Volcker aggressively hiked interest rates to tame runaway inflation.
“Go back to the type of pain Paul Volcker had to impose on the U.S. economy to ring out inflation. He had to take the unemployment rate above 10%,” said Roach. “The only way we’re not going to get there is if the Fed under Jerome Powell sticks to his word, stays focused on discipline, and gets that real Federal funds rate into the restrictive zone. And, the restrictive zone is a long ways away from where we are right now.”
Despite the Fed’s sharp interest rate hike trajectory, the unemployment rate is at 3.5%. It matches the lowest level since 1969. That could change on Friday when the Bureau of Labor Statistics releases its August report. Roach predicts the rate is bound to start climbing.
“The fact that it hasn’t happened and the Fed has done a significant monetary tightening to date shows you how much work they have to do,” he noted. “The unemployment rate has got to go probably above 5%, hopefully not a whole lot higher than that. But it could go to 6%.”
The ultimate tipping point may be consumers. Roach speculates they will soon capitulate due to persistent inflation. Once they do, he predicts the pullback in spending will reverberate through the broader economy and create pain in the labor market.
“We’re going to have to have a cumulative drop in the economy [GDP] somewhere of around 1.5% to 2%. And, the unemployment rate is going to have to go up by 1 to 2 percentage points in a minimum,” said Roach. “That would be a garden variety recession.”
‘Cold war’ with China
The prognosis abroad isn’t much better.
He expects the global economy will also sink into a recession. He doubts China’s economic activity will cushion the impact, citing the country’s zero-Covid policy, serious supply chain backlogs and tensions with the West.
Roach is particularly worried about the U.S. and China relationship, which he writes about in his new book “Accidental Conflict: America, China and the Clash of False Narratives” due out in November.
“In the last five years, we’ve gone from a trade war to a tech war to now a cold war,” Roach said. “When you’re in this trajectory of esclating conflict as we have been, it doesn’t take much of spark to turn it into something far more severe.”
Server chip Yitian 710, developed by Alibaba’s in-house semiconductor unit T-Head, on display during the Apsara Conference 2021 on Oct. 19, 2021 in Hangzhou, China.
Xu Kangping | Visual China Group | Getty Images
Global semiconductor sales topped half a trillion dollars for the first time, as companies ramped up production to meet demand amid a worldwide chip shortage, a top industry association said.
In 2021, global semiconductor industry sales reached a record $555.9 billion, up 26.2% year on year, the U.S.-based Semiconductor Industry Association (SIA) said on Monday.
The industry shipped a record 1.15 trillion semiconductor units last year.
“In 2021, amid the ongoing global chip shortage, semiconductor companies substantially ramped up production to unprecedented levels to address persistently high demand, resulting in record chip sales and units shipped,” said John Neuffer, SIA president and CEO.
“Demand for semiconductor production is projected to rise significantly in the years ahead, as chips become even more heavily embedded in the essential technologies of now and the future.”
The global chip crunch hit industries across the board from consumer electronics to automakers, and companies became unable to deal with the demand for and shortage of products.
It has also led to governments and lawmakers around the world scrambling to secure chip supplies and invest to bring manufacturing of semiconductors closer to home.
Last year, U.S. President Joe Biden earmarked $50 billion for semiconductor manufacturing and research as part of a $2 trillion economic stimulus package. A bill known as the CHIPS for America Act is also working its way through the legislative process and aims to provide incentives to enable advanced research and development and secure the supply chain.
This month, the European Commission, the executive arm of the EU, announced a new European Chips Act that will enable 15 billion euros ($17.11 billion) in additional public and private investments until 2030.
Semiconductors sales in China totaled $192.5 billion in 2021, up 27.1% year on year, eclipsing any other market, the SIA said.
China has been focusing on boosting its domestic chip industry over the last few years amid geopolitical tensions with the United States. Beijing has made increasing self-sufficiency in semiconductors a priority, though China remains heavily reliant on foreign technology.
The market in the Americas saw the largest sales increase of 27.4% in 2021. Europe followed with 27.3% growth.
European Union lawmakers have laid out ambitious plans to significantly ramp up production of semiconductors in the bloc and become a global leader in the industry.
To do that, it will need some of the key players from Asia and the U.S. to invest heavily in the continent, given the EU’s lack of technology in critical areas like manufacturing, analysts said.
On Tuesday, the European Commission, the executive arm of the EU, launched the European Chips Act — a multi-billion euro attempt to secure its supply chains, avert shortages of semiconductors in the future, and promote investment into the industry. It still requires approval from EU lawmakers to pass.
Chips are critical for products from refrigerators to cars and smartphones, but a global crunch has impacted industries across the board causing production standstills and shortages of products.
Semiconductors have become a national security issue for the U.S., and has even become a point of geopolitical tension between the U.S. and China. That clash over semiconductors has led to sanctions on China’s biggest chipmaker SMIC and the world’s second-largest economy doubling down on efforts to boost self-sufficiency.
The EU is now trying to mitigate some of those risks with its latest proposal.
“Faced with growing geopolitical tensions, fast growth in demand, and the possibility of further disruptions in the supply chain, Europe must use its strengths and put in place effective mechanisms to establish greater leadership positions and ensure security of supply within the global industrial chain,” the European Commission said.
Manufacturing challenge
The EU Chips Act looks to plough 43 billion euros ($49 billion) of investment into the semiconductor industry and help the bloc to become an “industrial leader” in the future.
Specifically, the EU wants to boost its market share of chip production to 20% by 2030, from 9% currently, and produce the “most sophisticated and energy-efficient semiconductors in Europe.”
Part of its plan involves reducing “excessive dependencies,” though the EU notes the need for partnerships with “like-minded partners.”
As it looks to become more self-sufficient, the EU will still rely heavily on the U.S. and in particular, Asia. That’s because of the quirks of the semiconductor supply chain and the changing nature of the industry.
Over the last 15 years or so, companies have begun shifting to a fabless model — where they design chips but outsource the manufacturing to a foundry.
In the actual manufacturing of chips, Asian companies now dominate, led by Taiwan’s TSMC which has about a 50% market share in terms of foundry revenue. South Korea’s Samsung is the next biggest, followed by Taiwan’s UMC.
U.S. firm Intel, which was once a key player, has fallen behind in recent years. However, it is now focusing on the foundry business and plans to make chips for other players. But its technology still remains behind the likes of TSMC and Samsung which can make the most cutting-edge chips that go into the latest smartphones, for example. Intel said last year it plans to spend $20 billion on two new chip plants in Arizona, in a bid to catch up.
The EU, however, has no companies that can manufacture the latest chips.
“The primary area the EU will need to partner is in bleeding edge wafer manufacturing. EU players today are stuck at 22nm and it’s unrealistic to think that local EU players can catch up from 22nm (nanometers) to 2nm,” Peter Hanbury, a semiconductor analyst at research firm Bain, told CNBC.
The nanometer number indicates the size of the transistors on the chip. A small number means a higher number of transistors can fit, leading to potentially more powerful chips. The chip in Apple’s latest iPhone, for example, is 5nm. These are considered the leading-edge chips.
EU companies may also rely on semiconductor design tools from the U.S.
Boosting chip production to 20% market share is an “an extremely tall order” for the EU, according to Geoff Blaber, CEO of CCS Insights. “The focus on manufacturing is the biggest challenge there,” Blaber told CNBC.
Is the EU attractive enough?
As countries and regions around the world look to secure their semiconductor supplies, there is growing competition to secure talent and convince companies to invest.
As part of a $2 trillion economic stimulus package, U.S. President Joe Biden earmarked $50 billion for semiconductor manufacturing and research. A bill known as the CHIPS for America Act is also working its way through the legislative process.
Countries like Japan, South Korea and China are all boosting investment into semiconductors too.
“The primary challenge will be in attracting new players to the EU. Specifically, the EU must become a more attractive location than other geographies,” Hanbury said.
The EU has been trying to woo leading-edge chip manufacturers. Intel is planning to build a new chip fab in Europe, although a specific site has not yet been chosen. TSMC is in the early stages of assessing its own production facility in Europe.
“The EU (or any geography) doesn’t need to outspend the semiconductor players but rather to influence their spend to occur in their geography,” Hanbury said.
EU strengths
Even though European firms are behind in the latest manufacturing technology, the EU still has some key players in the semiconductor industry.
One of the most important is ASML, a Dutch firm that makes a machine used by the likes of TSMC, and is used to make the most cutting-edge chips. Apple suppliers STMicro and NXP are also both based in Europe.
“[The] EU has several key assets in the industry,” Hanbury said.
The EU’s focus could be on securing chip supply for sectors where European firms have a large presence such as the automotive industry. Semiconductors that go into cars are often less advanced and don’t require the latest manufacturing technology.
“Think about some of those sectors where we’re going to see the demand for the technology in the coming years and automotive is one big opportunity in Europe and I think that’s something I’d expect the EU to be focusing on,” Blaber said.
Huawei has launched its premium P50 Pro and foldable P50 Pocket smartphones in international markets even as it continues to face challenges from U.S. sanctions. The P50 Pocket is featured at Huawei’s flagship store in Hangzhou, China.
Long Wei | Costfoto | Future Publishing | Getty Images
Huawei has launched high-end smartphones in international markets despite its diminished global standing as a result of U.S. sanctions.
The Chinese telecommunications firm announced plans on Wednesday to launch the P50 Pro and foldable P50 Pocket to markets outside China. These phones launched last year in China.
Neither phone however has the ability to connect to super-fast 5G internet as a result of U.S. sanctions that continue to bar Huawei from purchasing certain U.S. technology. Instead, the devices sport chips from U.S. company Qualcomm to allow 4G connections.
The P50 Pro has a 6.6-inch display and two large camera modules on the back of the phone. The P50 Pocket is a foldable smartphone designed to slip into pockets and bags. The phones are designed to be able to sync across various Huawei hardware products.
The P50 Pro starts at 1,199 euros ($1,353).
With the release of these handsets globally, Huawei is sticking to its ambitions to continue to have a feasible business in consumer electronics.
But its global standing has declined dramatically since it became the number one smartphone player in the world in the second quarter of 2020. Counterpoint Research estimates Huawei’s worldwide market share to be 1.7% in the fourth quarter of 2021, with China making up more than 90% of that total.
Signage at the Alibaba Group Holdings Ltd. headquarters in Hangzhou, China, on Wednesday, March 24, 2021.
Qilai Shen | Bloomberg | Getty Images
GUANGZHOU, China — Chinese e-commerce giant Alibaba launched a new server chip on Tuesday, as it looks to boost its cloud computing business and compete against U.S. rivals like Amazon.
The processor, called Yitian 710, will go into new servers called Panjiu.
The chip and servers will not be directly sold to customers. Instead, Alibaba’s cloud computing clients will buy services based on these latest technology. These servers are designed for artificial intelligence applications and storage.
The company did not say when the services based on the latest chip and server will be available for customers.
Alibaba will not be manufacturing the semiconductor but will be designing it instead.
That’s a trend among Chinese companies. Huawei designed its own smartphone chips and Baidu raised money this year for a standalone semiconductor business. U.S cloud computing rivals including Google and Amazon have also done the same.
GUANGZHOU, China — China is looking to boost research into what it calls “frontier technology” including quantum computing and semiconductors, as it competes with the U.S. for supremacy in the latest innovations.
In its five-year development plan, the 14th of its kind, Beijing said it would make “science and technology self-reliance and self-improvement a strategic pillar for national development,” according to a CNBC translation.
Premier Li Keqiang said on Friday that China would increase research and development spending by more than 7% per year between 2021 and 2025, in pursuit of “major breakthroughs” in technology.
China’s technology champions such as Huawei and SMIC have been targeted by U.S. sanctions as tensions between Beijing and Washington have ramped up in the past few years.
As such, China has concentrated on boosting its domestic expertise in areas it sees as strategically important, such as semiconductors. And now it has laid out seven “frontier technologies” that it will prioritize not just for the next five years, but beyond too.
1) Artificial intelligence (AI)
China plans to focus on specialized chip development for AI applications and developing so-called open source algorithms. Open source technology is usually developed by one entity and licensed by other companies.
There will also be an emphasis on machine learning in areas such as decision making. Machine learning is the development of AI programs trained on vast amounts of data. The program “learns” as it is fed more data.
AI has been a key field for Chinese companies and the central government over the last few years. Major companies such as Alibaba and Baidu have been investing in the technology.
China and the U.S. are competing for AI dominance. A group of experts chaired by former Google CEO Eric Schmidt said China could soon replace the U.S. as the world’s “AI superpower.”
2) Quantum information
3) Integrated circuits or semiconductors
Semiconductors are a critical area for China and one it has invested a lot in over the past few years but the country has struggled to catch up to the U.S., Taiwan and South Korea.
The problem is the complexity of the semiconductor supply chain. Taiwan’s TSMC and South Korea’s Samsung are the two most advanced chip manufacturers but they rely on tools from the U.S. and Europe.
Washington has put SMIC, China’s biggest chip manufacturer, on an export blacklist called the Entity List. SMIC cannot get its hands on American technology. And the U.S. has reportedly pushed to stop Dutch company ASML from shipping a key tool that could help SMIC catch up to rivals.
Since China doesn’t have the companies that can design and make the tools that its chip manufacturers require, it relies on companies from other countries. This is something China wants to change.
In its five-year plan, China says it will focus on research and development in integrated circuit design tools, key equipment and key materials.
Chips are incredibly important because they go into many of the devices we use such as smartphones but are also important for other industries.
4) Brain science
China plans to research areas such as how to stop diseases of the brain.
But it also says that it plans to look into “brain-inspired computing” as well as “brain-computer fusion technology,” according to a CNBC translation. The five-year plan did not elaborate on what that could look like.
China laid out seven “frontier” technologies in its 14th Five Year Plan. These are areas that China will focus research on and include semiconductors and brain-computer fusion.
Yuichiro Chino | Moment | Getty Images
However, such work is already underway in the U.S. at Elon Musk’s company Neuralink. Musk is working on implantable brain-chip interfaces to connect humans and computers.
5) Genomics and biotechnology
With the outbreak of the coronavirus last year, biotechnology has grown in importance.
China says it will focus on “innovative vaccines” and “research on biological security.”
6) Clinical medicine and health
China’s research will concentrate on understanding the progression of cancer, cardiovascular, respiratory and metabolic diseases.
The government also says that it will research some “cutting-edge” treatment technologies such as regenerative medicine. This involves medicine that can regrow or repair damaged cells, tissues and organs.
China says it will also be looking at key technologies in the prevention and treatment of major transmissible diseases.
7) Deep space, deep earth, deep sea and polar research
Space exploration has been a top priority for China recently. Beijing said it will focus on research into the “origin and evolution of the universe,” exploration of Mars as well as deep sea and polar research.
In December, a Chinese spacecraft returned to Earth carrying rocks from the moon. It was the first time China has launched a spacecraft from an extraterrestrial body and the first time it has collected moon samples.
And in July, China launched a mission to Mars called Tianwen -1.