China's export curbs and Asian chipmakers' green dilemma

Hello from Taipei! This is Lauly. I hope you had a good start to your summer holidays. I was hoping for a break myself after covering the annual general meeting season for tech suppliers, which took me around Taiwan’s west coast cities amid scorching heat.

During the past month of AGMs, I listened to executives share their visions, outlooks and concerns for the year ahead. Some suppliers are busy with rush orders thanks to the generative artificial intelligence boom sparked by ChatGPT, while others are still cautious about the recovery of the global economy in the second half of this year.

“The inventory is indeed getting back to a relatively healthy level and we’ve seen some small rush orders placed by notebook computer clients,” said Martin Wong, president of Compal Electronics, the world’s biggest contract notebook maker. “But we can tell the clients are reluctant to build too much inventory, as no one knows if the market demand is actually coming back.”

Many suppliers shared the same sentiment.

Another common worry I heard over the past several weeks involved the possibility of geopolitics further disrupting the supply chain. It turned out they were right.

The Netherlands — home to the world’s most valuable chip tool maker ASML — unveiled the details last week of regulations that will bar companies from exporting certain advanced chipmaking machines without a licence. A few days later, China announced it would limit the exports of some key chip materials that it holds a near monopoly on, though Beijing denied it was a retaliatory move.

“Our US colleagues are having holidays this week [for the Fourth of July] and we in Asia are still digesting the new rules. We don’t know exactly how China would execute the export controls, but surely it’s going to be another trade disruption,” said a Taiwan-based manager of a US chip developer that relies on some of the materials targeted by China.

Supply chain stresses

China this week launched a set of new rules to control the exports of several materials — mainly gallium and germanium — that are crucial for electric vehicles, renewable energy, semiconductors and military tech, write Nikkei Asia’s Cheng Ting-Fang and Lauly Li.

The announcement is widely seen as a response to the Netherlands, which just days earlier followed the US and Japan in unveiling the details of export controls on advanced chip production equipment.

Most conventional chips, such as CPUs, are built on wafers made from silicon. Chips made using gallium- and germanium-based wafers, by contrast, are known as compound semiconductors. These chips can handle high power, frequencies and voltages, making them suitable for a range of demanding applications. Compound semiconductors are vital for emerging industries from EVs to renewable energy to military tech.

The White House identified gallium and germanium as vulnerabilities in the supply chain two years ago, given their geographical concentration in China. And these are not the only raw materials whose supply is dominated by China. Rare earths, whose export Beijing once used as leverage in a territorial spat with Japan, is another bargaining chip.

The US is taking action to address these vulnerabilities. MP Materials, an American refiner, is reviving a rare earths mine in the high desert of southern California, writes Nikkei Asia’s Yifan Yu in this week’s visually rich Big Story.

Mountain Pass Rare Earth Mine’s regeneration has received US government backing, including funding from the Department of Defense. It is part of a Washington plan to rebuild America’s presence in the metals market, which it forfeited to China decades ago.

A statement on the MP Materials website reads: “Our Mission is to restore the full rare earth supply chain to the United States of America.”

Reduced Vision

Apple has been forced to scale back the production target of its mixed-reality headset, hailed last month as its most significant launch since the iPhone, due to the complexities in the design and components, write the Financial Times’ Qianer Liu, Patrick McGee and Kana Inagaki.

Luxshare, the Chinese contract manufacturer that will initially assemble the headset, is set to make fewer than 400,000 units in 2024, two people close to the process have said, compared with an earlier target of 1mn units in the first 12 months.

The latest forecast reflects Apple’s lack of confidence in its ability to scale up production, said multiple industry sources, while plans for a cheaper device have been pushed back.

The low output from suppliers has hit Luxshare’s assembly line production of the device, said those people. The manufacture of micro-OLEDs for the screens, the most expensive component of the Vision Pro, is of particular concern.

The cut to 2024 forecasts has disappointed Luxshare, which has been gearing up to make nearly 18mn units annually in the coming years, according to one person close to the company.

But Luxshare, the Chinese rival to Taiwanese contract manufacturer Foxconn, will still be busy as Apple pushes on with working on a later generation of the headset.

It’s not easy going green

Asian chipmakers like Taiwan Semiconductor Manufacturing Co. and Samsung are struggling to access green energy in their home markets, leaving them lagging their US and European rivals in the global push to reduce carbon emissions, Nikkei Asia’s Cheng Ting-Fang, Lauly Li and Kim Jaewon write.

Green energy sources in Taiwan, home to TSMC, the world’s biggest contract chipmaker, accounted for less than 9 per cent of the island’s total electricity output in 2022. Samsung’s home market of South Korea had a similar level of renewable energy contribution. The numbers were much higher in the west, with the US achieving a rate of 21.5 per cent last year and the European Union logging 17.2 per cent in 2021.

The chipmaking sector is extremely energy-intensive, especially for cutting-edge chips. But big global customers like Apple, Google and Microsoft have all committed to using 100 per cent renewable energy by 2025 and are demanding their supply chains — including chipmakers — help them reach that goal.

TSMC Chairman Mark Liu has said Taiwan’s slowness in developing renewable energy is holding the company back from its environmental goals. Samsung, meanwhile, said South Korea is one of the most challenging countries in the world to source renewable energy. Both chipmakers have a target of achieving 100 per cent renewable energy use by 2050.

Spot the fake

Deepmedia, an American start-up that detects “deepfake” media content, recently secured a multimillion-dollar deal with the US government and is now turning its eye to Asia, where it says governments are increasingly concerned about the spread of misinformation.

Founder and CEO Rijul Gupta told Nikkei Asia’s Ryohtaroh Satoh in an interview that the Silicon Valley-based start-up is now in talks with “multiple Asian governments, as well as multiple Asian media corporations” to provide its technology.

The term deepfake refers to video or audio made using artificial intelligence but passed off as authentic. Such clips can make it look like someone said or did something they did not. Deepfakes are increasingly being used for a variety of purposes, including for entertainment short videos, as well as the spread of misinformation.

“Two major producers of deepfake content in the globe are Russia and China,” Gupta said. “Russian deepfakes have been centred [on] the west . . . . Chinese deepfakes rather have been focused on targeting their Asian neighbours.”

With an important election coming up in Singapore, the CEO said his company was approached by an entity from the city-state that was concerned about risks that deepfakes pose to the “integrity of the political process.”

Suggested reads

1. India aims to produce first semiconductors within 18 months (FT)

2. Mazda to consolidate China dealer networks in EV push (Nikkei Asia)

3. Japan arms itself for global chip wars with $6.4bn state-backed deal (FT)

4. Indonesia’s Jokowi eyes EV lithium deals on Australia visit (Nikkei Asia)

5. Economists fear generative AI’s impact on India, Indonesia (Nikkei Asia)

6. YouTube cracks down on North Korean vloggers presenting regime’s ‘likeable’ face (FT)

7. India’s richest man launches $12 internet-connected phone (FT)

8. Tesla 20 years on: EV leader’s rise sparked by Toyota partnership (Nikkei Asia)

9. Chinese tech group joins the battle on falling birth rate (FT)

10. China’s Tiangong space station begins hosting global experiments (Nikkei Asia)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at techasia@nex.nikkei.co.jp.