You will be able to map the chip supply chain and explain how export controls change companies' earnings.
Marcus owns two chip stocks: a US chip designer and a small SGX-listed company that makes precision parts for chip equipment makers. When the US announced new limits on chip sales to China in October 2022, both fell on the same day. He'd thought of them as different bets, one a US technology giant and one a Singapore engineering firm. The supply chain made them the same bet, and the export rules hit them through different doors.
Making an advanced chip takes several distinct stages, and each one is dominated by a small number of companies and places.
Design comes first. Companies such as Nvidia, AMD, Qualcomm and Apple design chips but mostly don't make them. They rely on design software from a handful of firms, Synopsys and Cadence chief among them.
Manufacturing equipment is the second stage. The machines that print circuits onto silicon wafers are made by a few companies in the US, the Netherlands and Japan. One Dutch company, ASML, is the only maker of the extreme ultraviolet lithography machines needed for the most advanced chips.
Then comes fabrication. Making leading-edge chips is concentrated in very few places, with TSMC in Taiwan producing most of the world's most advanced logic chips for other companies' designs. Memory chips come mainly from Samsung, SK Hynix and Micron.
Packaging and testing, the last stage, wraps finished chips and checks them, much of it in Taiwan, China and Southeast Asia, including Malaysia and Singapore.
Concentration at each stage means a rule that targets one link can stop the whole chain for a particular customer. It also means a handful of companies carry most of the exposure, which makes the effect easy to trace if you know where to look.
Export controls limit which products, software and machines can be sold to which countries, and to which companies within them. Governments use them to slow rivals' access to technology with military uses.
In October 2022 the US announced broad rules restricting sales of advanced computing chips and chipmaking equipment to China, and tightened them again in 2023. The Netherlands and Japan announced their own limits on equipment sales the same year. Because the chain is so concentrated, these controls reached companies far beyond the US: equipment makers in Europe and Japan, and suppliers to all of them.
Export controls rarely just reduce an industry's revenue. They move it.
A US chip designer that sold advanced chips to Chinese customers loses that revenue, or has to design lower-performance versions that fit under the rules, as Nvidia did with chips made specifically for the Chinese market. Chinese chip designers and manufacturers can gain, because local customers have fewer foreign options. Equipment makers lose Chinese orders for restricted machines but may see Chinese firms rush to buy older, permitted equipment before rules tighten further.
So when a new control is announced, ask three questions about each company: how much of its revenue comes from the restricted market, whether its products fall under the rule or just outside it, and whether a competitor gains what it loses.
Singapore hosts parts of the chip supply chain, including wafer fabs run by Micron, GlobalFoundries and UMC, and manufacturing and service sites for several large equipment makers. Around them sits a group of SGX-listed precision engineering, test equipment and component suppliers.
Those local companies are exposed indirectly. Most don't sell to China themselves. They sell to equipment makers whose orders depend on chip makers' spending, which depends in turn on rules about who may buy what. And many have a few very large customers, so a change at one customer can move their revenue a lot.
You don't need to guess. Annual reports and US 10-K filings disclose revenue by geography in the segment notes, and many name their largest customers or say what share of revenue comes from them. The risk factors section describes export controls if management considers them material.
Here is Marcus's search, with made-up figures. His US chip designer's 10-K showed 18% of revenue from customers billed in China and Hong Kong, and a risk factor describing the 2022 rules. His SGX supplier's annual report showed no China revenue at all, but its top two customers, both equipment makers, made up 62% of revenue. One holding had direct exposure. The other had concentrated, indirect exposure. Module 6, Read an annual report and a 10-K like an analyst, shows where these disclosures sit in detail.
For the activity, take one technology company you own or follow, open its latest annual report, and find the revenue it earns from regions affected by export controls.
Pick one technology company you own or follow and find in its annual report how much revenue comes from regions affected by export controls.
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