US firm AXT applying for permits after China restricts chip-making exports

US semiconductor wafer maker AXT 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 that are key to making chips.

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 minimise any potential disruption to our customers,” said AXT chief executive Morris Young.

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

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

In the first quarter, gallium arsenide and germanium substrates exported from China contributed about US$4.3 million in revenue 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 that China controlled 80 per cent of global output of the materials, and that they saw this as China’s second and much bigger countermeasure in its tech war with the US, after Beijing banned some domestic sectors from purchasing products from US memory chip maker Micron Technology in May.

The controls are also likely a response to a potential US tightening of a ban on artificial intelligence chips, the analysts said.

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

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

The US and the Netherlands are set to deliver a one-two punch to China’s semiconductor makers this summer by further restricting sales of chip-making 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 US. South China Morning Post