U.S. semiconductor wafer manufacturer AXT Inc (NASDAQ: AXTI) announced on Monday its plans to seek permits to continue exporting gallium and germanium substrate products from China. This move comes in response to Beijing’s sudden imposition of export controls on these metals, which are crucial for chip production.
Headquartered in California, AXT operates manufacturing facilities in China through its subsidiary Tongmei. The company stated that Tongmei would immediately initiate the process of applying for the necessary permits. Morris Young, CEO of AXT, expressed the company’s commitment to obtaining the permits while minimizing any potential disruptions for its customers.
China’s commerce ministry recently announced its intention to control the exports of eight gallium products and six germanium products starting from August 1, citing national security and interests as the rationale behind these measures. These export controls represent the latest development in the escalating battle over access to advanced microchips between Beijing and Washington. The United States is also contemplating imposing new restrictions on the shipment of high-tech microchips to China.
During the first quarter, AXT generated approximately $4.3 million in revenue from the export of gallium arsenide and germanium substrates from China. These materials find applications in various sectors, including consumer electronics, automotive, display technology, and industrial equipment. Gallium is used in the production of gallium nitride and gallium arsenide compound semiconductors, which are utilized in a wide range of products, from power electronics to 5G base stations. Germanium is employed in infrared technology, fiber optic cables, and solar cells.
Analysts at Jefferies commented that China currently controls about 80% of global output for these materials. They regarded China’s export controls as a significant retaliatory measure in the ongoing U.S.-China tech war, following Beijing’s earlier ban on certain domestic sectors from purchasing products from U.S. memory chipmaker Micron (NASDAQ: MU) in May. The analysts also suggested that these controls may be in response to potential U.S. restrictions on AI chip exports.
They warned of the possibility of a rapid escalation in tensions between the two countries, stating, “If this action doesn’t change the U.S.-China dynamics, more rare earth export controls should be expected.”
Further exacerbating the situation for China’s chip manufacturers, the United States and the Netherlands are planning to impose additional restrictions on the sale of chipmaking equipment this summer. These measures aim to prevent China’s military from utilizing advanced chip technology.
According to customs data cited by Chinese news website Caixin, Japan, Germany, and the Netherlands were the top importers of China’s gallium products in 2022. As for germanium products, Japan, France, Germany, and the United States were the primary importers.
