Two weeks after the Biden administration announced new restrictions on semiconductor exports to China, investors and analysts are still trying to understand how much of a long-term impact the new rules will have on the industry.
What Happened? On Oct. 7, the Commerce Department announced a new set of export controls aimed at protecting U.S. national security and foreign policy interests. In addition to restricting U.S. sales of semiconductor technology to China, the new rules also require foreign companies to license American tools used to produce high-end chips sold to China.
Why It's Important: Semiconductor stocks have taken a hit since the new rules were announced, with the VanEck Semiconductor ETF SMH now down 8.4% over the last two weeks.
Some semi stocks have been hit even harder during that stretch. Taiwan Semiconductor Mfg. Co. Ltd. TSM is down 15%, while Advanced Micro Devices, Inc. AMD is down 14.5% and Skyworks Solutions Inc SWKS is down 11%.
On its third-quarter earnings call on Oct. 13, Taiwan Semi said the new regulations would have minimal impact on the company's bottom line. Bank of America analyst Brad Lin estimates the export restrictions will impact Taiwan Semi's sales by less than 2%.
Lin recently spoke to Paul Triolo, the Trustee Chair in International Studies and lifetime member of the Council on Foreign Relations. Lin said this week that Triolo believes the biggest immediate impact on the new regulations will be on higher-end AI and supercomputing applications.
"Mr. Triolo believes the intention of the new rules is to maintain U.S. tech leadership and address national security concerns, instead of decoupling," Lin said Wednesday.
He noted three key questions for U.S. companies that will need to be answered for investors to get a clear picture of the situation moving forward:
- How long will U.S. shipment periods to China be extended?
- Which firms will be added to the so-called Entity List?
- Will other areas, such as data center and autonomous vehicle technology, be impacted?
In addition, Triolo said China's response to the new restrictions is also a critical unknown at this point. China will likely feel pressured to retaliate against the U.S. with its own set of trade rules at some point, but it's unclear exactly what market or companies China will target.
Benzinga's Take: The new semiconductor regulations are just the latest blow to a beaten-down semiconductor group in 2022.
With the SMH ETF now down 40.3% year-to-date, there are bound to be some excellent long-term buying opportunities out there for discerning semiconductor investors.
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