US firm AXT applying for permits after China restricts chipmaking exports

SHANGHAI (Reuters) – U.S. semiconductor wafer maker AXT (NASDAQ:) Inc said on Monday it would seek permits to keep exporting gallium and germanium substrate products from China, after Beijing abruptly imposed export controls on the metals key to chipmaking.

California-headquartered AXT, which has manufacturing facilities in China, said its Chinese subsidiary Tongmei would immediately proceed to apply for the permits.

“We are actively pursuing the necessary permits and are working to minimize any potential disruption to our customers,” said AXT Chief Executive Officer Morris Young.

China’s commerce ministry said on Monday it would control exports of eight gallium products and six germanium products from Aug. 1 to protect its national security and interests.

The controls mark the latest salvo in an escalating war over access to high-tech microchips between Beijing and the United States and come as Washington mulls new restrictions on the shipment of high-tech microchips to China.

In the first quarter, gallium arsenide and germanium substrates exported from China contributed about $4.3 million in revenue for primarily for consumer, automotive, display and industrial applications, AXT said.

Gallium is used in gallium nitride and gallium arsenide compound semiconductors for products ranging from power electronics to 5G base stations. Germanium is also used in infrared technology, fibre optic cables and solar cells.

Jefferies analysts said in a note China controlled 80% of global output of the materials and that they saw this as China’s second and much bigger countermeasure in the U.S.-China tech war, after Beijing banned some domestic sectors from purchasing products from U.S. memory chipmaker Micron (NASDAQ:) in May.

The controls are also likely a response to a potential U.S. tightening of an AI chip ban, the analysts said.

“The risk of a rapid escalation of U.S.-China tension is not small,” they said.

“If this action doesn’t change the U.S.-China dynamics, more rare earth export controls should be expected.”

The United States and the Netherlands are set to deliver a one-two punch to China’s chipmakers this summer by further restricting sales of chipmaking equipment, part of efforts to prevent their technology from being used by China’s military.

In 2022, top importers of China’s gallium products were Japan, Germany and the Netherlands, news website Caixin said, citing customs data. Top importers of germanium products are Japan, France, Germany and the United States.