A lot of focus has recently been put on China’s ability to make cutting-edge chips, and for good reason—with the dawn of the AI age, these semiconductors will play a massive role in the geopolitical race to get ahead economically and even militarily. But boring chips matter too.
As Fortune’s Lionel Lim writes today, China will in the coming years continue to make most of the “legacy chips”—using older, cheaper production processes—that power our electric vehicles, household appliances, and so on.
Chinese production of these mature chips grew 40% in the first quarter, partly thanks to state support and partly because, despite soaring demand, making these chips still isn’t profitable enough for manufacturers in the U.S. and Europe. As Lionel notes, China’s boosted production is also a result of U.S.-led export restrictions on the top-shelf equipment that’s needed to make cutting-edge stuff:
China’s goal is to eventually produce the advanced chips that can power AI or 5G mobile technology. Yet Washington’s export restrictions are stopping Chinese chip manufacturers from getting the tools they need. That means Chinese chip manufacturers are turning to the less advanced chips they can still produce. “They have to start somewhere,” says Chim Lee, a senior Asia analyst at the Economist Intelligence Unit.
China’s ongoing dominance in legacy chip production could create problems down the line. On Friday, Reuters reported that the European Commission has started asking the local semiconductor sector what it thinks of the situation, particularly the possibility of Chinese subsidies creating an oversupply of legacy chips.
The result could be the EU and U.S. developing “joint or cooperative measures to address dependencies or distortionary effects,” the Commission told the news agency.
The EU and U.S. have in recent months already promised heightened tariffs to crack down on the import of Chinese electric vehicles, which again enjoy subsidized production in China, making life harder for Western competitors. (The U.S. tariffs are, at 100%, more than twice as high as Europe’s, but have far less impact as Chinese EV makers have a roaring trade in the EU but no meaningful presence in the U.S.) It now looks like this blossoming trade war could extend to legacy chips.
ASML, the industry-leading Dutch maker of chip-making machines—and Europe’s biggest tech firm—doesn’t seem very keen on this scenario. New CEO Christophe Fouquet just told the German newspaper Handelsblatt that “the automotive industry in particular, including the German one, needs a lot more” of these legacy chips.
“If someone wants to slow [Chinese legacy-chip production] down, for whatever reason, then alternatives are needed,” Fouquet warned (as translated by Reuters). “There is no point in stopping someone from producing something you need.”
More news below.
David Meyer
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NEWSWORTHY
Smarter Siri timing. Siri’s incoming abilities to control actions inside Apple apps and to help users understand what’s on their displays will only arrive next spring, Bloomberg reports. But some Siri upgrades, such as ChatGPT integration, will be a 2024 affair. The publication also reports that the upcoming Series 10 versions of the Apple Watch may feature bigger two-inch screens, like the Watch Ultra has.
Samsung strike. Samsung workers in South Korea are staging an unprecedented three-day strike as of today, in the hope of securing better pay. As Reuters reports, their union held its first-ever industrial action last month—workers coordinated their paid time off to effectively stage a mass walkout—but the company said the event had no impact on its business activity. Samsung also claims that today’s strike by 6,500 workers has not disrupted production.
Apple (mostly) clears Epic Games Store. Apple has finally approved Epic’s alternative app store for iPhones in the EU, where a new antitrust law demands that Apple allow such things. However, as The Verge reports, it seems to have only done so provisionally, as it wants Epic to redesign some buttons in its store—apparently because they look too much like Apple’s “install” and “in-app purchases” buttons. Epic CEO Tim Sweeney claims doing so “would make our store less standard and harder to use.”
ON OUR FEED
“UNABLE TO ISSUE CITATION TO COMPUTER.”
—The all-caps police dispatch record of an incident in Phoenix last month, when a Waymo autonomous vehicle drove into oncoming traffic and the cops who pulled it over found no one inside. The Alphabet unit says its car had gone into the wrong lane because it “encountered inconsistent construction signage.”
IN CASE YOU MISSED IT
Chinese self-driving cars have quietly traveled 1.8 million miles on U.S. roads, collecting detailed data with cameras and lasers, by Rachyl Jones
There’s a ‘huge bottleneck’ in Nvidia AI chips, but that doesn’t mean regulatory action, EU competition chief says, by Bloomberg
Tesla’s Q2 powered it to a monster rally this week, but not everything is rosy when peering under the hood, by Christiaan Hetzner
Hedge funds have no idea what to do about Tesla as shares rally while Trump, tariffs, and backlash against ‘woke’ EVs loom, by Bloomberg
Security issues plague OpenAI as scrutiny increases, by Chris Morris
Paramount Global special committee backs merger with David Ellison’s Skydance Media, by Bloomberg
BEFORE YOU GO
Microsoft’s China phone order. Microsoft’s employees in China will be banned from using their Android handsets for work starting in September. According to Bloomberg, the issue is that Microsoft is trying to improve its security and therefore wants its workers to use its Authenticator password manager and Identity Pass app—but that means using Apple’s App Store or Google Play. Google Play isn’t available in China (Android devices there rely on the platforms of manufacturers like Huawei and Xiaomi), so Microsoft’s workers are about to be given iPhone 15s.
