Jefferies Analysts on US Semiconductor Export Controls

Investing.com – Jefferies analysts provided insights into the recent US semiconductor export controls targeting China in a note published on Tuesday. They described the measures as "better than feared" but warned that they are "likely not the end" of further restrictions.

On Monday, the update included 140 Chinese companies to the Entity List, which subjects them to foreign direct product rule (FDPR) restrictions.

However, two developments alleviated some concerns:

• CXMT Exemption: The DRAM player CXMT is not included in the Entity List, permitting its estimated $5-6 billion capital expenditure for 2025 to continue.
• Exemption for Dutch and Japan: Companies from these countries are exempted from FDPR, enabling Chinese firms to still acquire semiconductor production equipment (SPE) from them.

Jefferies forecasts that these measures will significantly impact China's semiconductor investments, predicting a potential 22% reduction in 2025 capex, which translates to approximately a $10 billion cut. This projection aligns with guidance from Western SPE companies.

While Japan and the Netherlands may benefit from these exemptions, Jefferies emphasizes that Chinese firms might face challenges in the short term. According to the analysts, most Chinese SPE companies report a localization rate for components and materials of about 85%-90%. Even with some parts sourced from the US, reliance on non-US options could negatively affect yield and productivity in the near future.

Specific Measures and Restrictions

The export controls include a ban on discrete high-bandwidth memory (HBM) 2 and higher. However, HBM packaged with GPUs that meet US computing power thresholds are still allowed.

Jefferies pointed out that NVIDIA's H20 product will not be restricted, and the company is likely preparing upgraded solutions for the Chinese market in 2025.

Additionally, the note indicated that this round of controls lacks a clear definition for advanced AI chips, with more restrictions expected soon. "We believe it will come in a separate announcement in the next two weeks," the analysts cautioned, adding that a potential Trump administration or Congress in 2025 could intensify these measures further.