Japan will formally implement a ban on the export of chips to Russia

Source: Content from MoneyDJ.

Russia invaded Ukraine, and Japan and Europe and the United States also raised economic sanctions against Russia, including banning chip exports to Russia. According to Japanese media, Japan will implement an export ban to Russia from March 18, including 57 high-tech products such as chips and sensors, with the goal of impacting Russia's military, aerospace and other fields.

The Nikkei Shimbun reported on the 10th that the Japanese government will in principle ban the export of high-tech products to Russia from March 18, including 31 products such as chips, communication equipment, signal processing equipment, sensors, radar, navigation equipment, and 26 software/technologies, a total of 57 items, with the goal of having an impact on Russia's military, shipbuilding, aerospace and other fields through cooperation with Europe and the United States.

The report pointed out that Japan prohibits the export of Russian goods in basically the same way as the United States and the European Union (EU). Japan exports few chips to Russia, most of which are expected to be under control, and advanced machines that have been strengthened in export screening and can be used for military purposes such as weapons will also be banned from the 18th.

It is reported that although chips, communication equipment and other items are listed as the object of export bans, completed products such as cars, smartphones, and PCs that use these parts will not be banned.

The proportion of Japanese machine tool orders and sales to Russia is less than 1%. According to the data released by the Japan Machine Tool Industry Association (JMTBA), in January 2022, Japan's orders for machine tools from Europe (sold to Europe) soared by 89.4% from the same month last year to 20.412 billion yen, of which orders sold to Russia/other regions (EU countries, Western Europe, and eastern Europe) soared by 175.9% to 400 million yen.

New export restrictions, russia to obtain chips more difficult?

On Thursday, the United States, Britain and the European Union imposed a number of new export restrictions on Russia's war against Ukraine. In terms of high-tech products, the scope of the restrictions is quite extensive and is aimed at restricting the development of the Russian defense industry base, military and intelligence services. In addition to military and intelligence capabilities, multiple adjacent industries, including those serving civilians, will also be affected. At the same time, the export of civilian equipment is either unrestricted or less strictly regulated.

The new rules implemented by the U.S. Department of Commerce (through its Bureau of Industry and Security (BIS)) require companies to obtain licenses from the U.S. government to export semiconductors, computers, telecommunications, information security equipment, lasers, sensors, navigation equipment, avionics, ship equipment, and aircraft components to Russia. In addition, the U.S. Department of Commerce added 49 Russian companies that are considered military end-user (MEUs) to the Entity List.

All companies that use U.S. technology or components to produce the above products must apply to the U.S. government for export licenses, including Taiwan's TSMC, which manufactures multiple chips for Russian entities. These applications will be reviewed on the assumption of rejection.

In fact, TSMC has said it will comply with new export control rules that will leave Russia without chips that could be used by its military, law enforcement and intelligence agencies. European chip designers and manufacturers such as Bosch, NXP and X-Fab have also said they will comply with the new export regulations, Bloomberg reported. The companies supply chips to Russian automaker Avtovaz, which is reportedly already looking for an alternative supply.

"TSMC complies with all applicable laws and regulations and is fully committed to complying with the new export control rules announced," TSMC said in a statement issued by Reuters. "The company also has a strict export control regime, including robust assessment and review procedures to ensure compliance with export control restrictions."

A few years ago, China's Huawei was subject to similar restrictions, which, needless to say, was devastating for the company. Without chips made by TSMC or Intel, Huawei's share of the smartphone, server and PC markets would collapse.

TSMC makes chips for a number of companies shipping chips to Russia, including AMD, Intel and Nvidia. It's unclear if the three companies will be able to obtain a license to ship their products to Russia. It is also unclear whether companies such as Dell, HP or Lenovo that ship PCs and servers to Russian entities need to apply for a license.

At the same time, Russia accounts for less than 0.1 percent of global chip purchases and builds very little product locally (and the products it builds are often not competitive even in its own markets), so economically the new export control rules won't hurt it.

Another feature of these restrictions is that they do not cause any immediate problems for Russia and its government. The country is likely to have sufficient hardware reserves to keep its military, law enforcement and intelligence services running.

"Eventually they will hurt, but it may not last for months," William Reinsch, a trade expert at the Center for Strategic and International Studies, said in a conversation with Reuters. "It's not a direct blow."

The new export restriction rules include categories that will be reviewed on a case-by-case basis, meaning that a large proportion of export license applications will be approved. The categories examined on a case-by-case basis relate to humanitarian needs, flight safety, maritime security, government space cooperation, civilian telecommunications infrastructure, government-to-government activities, and support for the limited operations of companies of Russian partner countries.

In addition, the United States will not restrict software updates to items used by civilian end users, consumer encryption technologies (if they are not directed at government end users (GUE) and Russian state-owned enterprises), consumer communication devices (again, not for GUEs and Russian state-owned enterprises), or even news media.

Essentially, this means that Russians can still buy Apple's iPhone and continue to use Apple's MacOS and Microsoft's Windows, not to mention buy medical devices and even news-making devices.

While the new strict export rules imposed by the U.S. government on the export of high-tech equipment and tools to Russia allow the import of the country's military and intelligence capabilities, they will not do so immediately. While similar restrictions have severely affected Huawei, they will not cause significant harm to Russia, as it produces almost no advanced chip-based equipment locally. Still, if a company like automaker Avtovaz has to shut down because of a lack of chips, it will hit the local economy, which will require federal intervention (or just make the country's largest automaker disappear).

Without chips, Russia would have gone

After Russia called Ukraine "special action," many European countries, led by the U.S. government, announced sweeping sanctions against Russia. Countless big brands have left Russia. To make matters worse, many chipmakers have also stopped supplying chips to Russia when it comes to technology development. These include AMD, Intel and TSMC, which undoubtedly makes Russia's already weak chip industry worse.

Although Russia's total chip purchases account for only 0.1% of the global total, this will have a fatal impact on the country's economic and technological development. For example, the two most important processors in Russia, Lake Baikal and Elbrus, were manufactured by TSMC.

In fact, russia's current chip industry has many similarities with the development of China's chip industry. Both face serious import and export deficits, backward chip manufacturing processes, and trade sanctions between Europe and the United States.

In 2020, Russia's imports of integrated circuits, diodes and transistors, as well as semiconductor devices totaled $1.39 billion. At the same time, the total export value reached 94 million US dollars. To make matters worse, the total output value is only about $19 million. Not only that, the output of integrated circuits has dropped significantly compared with previous years, about 900 million pieces in 2019 and about 220 million pieces in 2020.

In terms of manufacturing processes, Russia's level of craftsmanship is also quite backward. The process level of Mikron, Russia's largest chipmaker, is only 65nm. While laughing at this data, you should also know that other companies are far inferior to Mikron. (For comparison, the current Qualcomm Snapdragon 8 chip is manufactured with a 4nm process node.) In any case, Mikron has already started building factories for processes of 28nm and below. However, due to equipment and other reasons, it has not been able to meet expectations.

Honestly, we know that the cost of the manufacturing process is enormous. According to Russian experts, it takes nearly $10 billion to build a complete chip industry chain in Russia. The Russian government has said that by 2024, the total investment in the field of microelectronics will reach about $3 billion. Therefore, in the near future, Russia may forget about the highly competitive chip industry. This is also why many Russian experts believe that Russia has basically no opportunity for breakthroughs in the field of chip manufacturing.

The Russian government also tends to support the fabless model, giving design companies very large tax incentives. The corporate income tax rate was even reduced from 20% to 3%. Therefore, Russia still maintains a world leading position in high-level fields such as power, microwave, optoelectronics, and quantum communications.

However, as early as 2013, the European Union, the United States and its allies began imposing various sanctions on the Russian defense industry. At that time, the Russian government proposed a "package" of import substitution plans from military aviation to commercial and civilian. In addition, it has invested heavily in the development of domestic microelectronics. However, due to technical limitations and technical difficulties, Russia mainly invests in the field of design and packaging. It is not difficult to guess that a large number of manufacturing operations have been handed over to OEMs in regions such as Chinese mainland and Taiwan.

TSMC produces two of the most important processors for Russia, "Baikal" and "Elbrus". The "Elbrus" processor is also a key chip for information security in the Russian defense industry. Therefore, TSMC's supply cut will be "devastating" for Russian chip manufacturing.

Andrey Yevdokymov, general manager of Baikal Electronics, optimistically said in May last year that the European and American sanctions would not affect the company's processor production. At that time, he probably did not expect TSMC to join the sanctions.

Perhaps seeking help from China will be one of Russia's way out. However, some experts believe that due to the global chip shortage, China cannot quickly rebuild the supply chain in a short period of time to supply Russia. Chinese private companies are unlikely to risk sacrificing the U.S. market for the Russian market. After all, the Russian market is much smaller than in the United States and Europe. In addition, China is worried about secondary U.S. sanctions.

"What's more, China's chip manufacturing process itself is subject to U.S. export controls." Russian expert Leonid Kovacic believes that in the current situation, China is unlikely to help Russia fill the emerging technology gap.

When TSMC announced it would join the sanctions, Belarusian President Alexander Lukashenko said Belarus was ready to support Russian chip production as an alternative to foreign supply. However, the largest microprocessor manufacturer in Belarus is Integral of Minsk. The company's highest process is only 350nm process products, far from meeting the demand.

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