New Rules to Cut Out China

The Wall Street Journal reports U.S. Chip Toolmakers Move to Cut China From Supply Chains

The U.S. semiconductor industry is uprooting Chinese companies from supply chains, spurred by directives from Washington seeking to suppress China's involvement in sensitive next-generation technology.

Chip toolmakers are telling suppliers that they need to find alternatives to certain components obtained from China or risk losing their vendor status. Companies relaying this message include Applied Materials AMAT -0.43%decrease; red down pointing triangle and Lam Research LRCX -0.89%decrease; red down pointing triangle, according to people familiar with the matter. The two Silicon Valley companies make equipment used in the production of microprocessors and are among the world's biggest manufacturers of these tools.

Suppliers have also been told that they can't have Chinese investors or shareholders, the people said.

Industry executives said such moves were likely to raise costs because it won't be easy to find non-Chinese alternatives at similar prices.

Lam Research said it adheres to U.S. export controls for companies in the chip-manufacturing supply chain. Applied Materials said it identifies alternative sources for components to make sure they are available.

Washington is becoming increasingly strict on Chinese imports. The two main U.S. presidential candidates have pledged to get tougher on trade with China, and the semiconductor industry is seen as particularly critical because of its importance to national security.

The U.S., Japan and Europe are spending tens of billions of dollars on support for chip manufacturing in a bid to gain more control over the process.

In recent years, U.S. lawmakers have blocked China from acquiring the most advanced chips and chip-making equipment. That equipment is generally made or designed in the U.S. and in regions friendly to the U.S., including Taiwan, South Korea, Japan and Western Europe.