China’s chip companies face cooling demand and U.S. sanctions at the same time

But it could be worse—at least most aren’t the direct target of new rules and regulations from the U.S., unlike their Chinese counterparts.

China’s semiconductor companies are reportedly delaying production, pausing operations and laying off workers as they confront both falling demand for their products and the increasing difficulty of sourcing necessary equipment and components due to controls passed by the Biden administration. Last October, the Biden administration passed wide-ranging rules limiting the sale of chips and chipmaking equipment to China.

On Friday, Semiconductor Manufacturing International Corporation admitted that its new plant in Beijing was behind schedule, due to difficulties securing advanced chipmaking equipment. While SMIC did not specify what kinds of equipment it was having difficulty sourcing, the Chinese chipmaker has been restricted from buying U.S. equipment since December 2020, when it was put on the U.S.’s Entity List. U.S. companies cannot sell to companies on the Entity List without special permission from the U.S. Department of Commerce. 

Another Chinese chip giant is reportedly facing issues with procuring equipment. Yangtze Memory Technologies Corp, which is China’s largest maker of memory chips, has slashed its orders from one wafer producer by 70%, reported the South China Morning Post, citing an unidentified source. The company is also reportedly delaying the construction of a new chip plant, and is laying off 10% of its workforce.

YMTC reportedly started reducing its orders in early October, which corresponds with new U.S. restrictions on the sale of chips and chipmaking equipment to Chinese companies. The Biden administration put YMTC on the Entity List last December. 

YMTC did not immediately respond to a request for comment. 

Broad hit in China

Other companies based in China are getting hit from a slump in the semiconductor market.

Arm China is laying off around 95 workers, or about 13% of its workforce, Reuters reported over the weekend. Sources at the company told the news agency that the job cuts were due to a poor market outlook, as well as concerns about that U.S.-China tensions might prevent the company from serving Chinese customers. 

Arm China is a joint venture launched by U.K.-based semiconductor company Arm. The company does not produce chips in China, but instead acts as the exclusive distributor for Arm products in the Chinese market. 

Arm China did not immediately respond to a request for comment. A spokesperson from Arm noted that Arm China was a separate company, yet did not expect any disruption to its business in China.

Amkor Technology, the world’s second-largest packager of semiconductors, plans to suspend operations at its Shanghai factory and office for up to a week starting Feb. 27, due to a lack of “sufficient orders,” the SCMP reported. 

Amkor Technology, which is headquartered in Arizona, did not immediately respond to Fortune’s request for comment. The company told the SCMP that it had no plans to move operations nor lay off staff in China. 

Chip companies outside of China are also facing a cooling market for consumer electronics. U.S.-based Intel reported a 32% year-on-year decline in quarterly revenue for the most recent quarter, while Korean chipmaker SK Hynix reported a quarterly loss for the first time since its formation in 2012. 

But while most chipmakers project that sales might recover by the second half of the year, the future for China-based chipmakers may get more complicated in the near future. Japan and the Netherlands—two major exporters of chipmaking equipment—have reportedly agreed to enact similar export restrictions on sales to Chinese companies, following negotiations with the U.S.

Update, February 13, 2022: This article was updated with a comment from Arm.

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