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Geopolitical Tensions and Cyber Threats: Navigating the Uncertain Future of the Semiconductor Industry

On April 3rd, 2023, PwC Japan Group shared the results of a study on the impact of geopolitical risks on the semiconductor sector. They focused on the US-China conflict over Taiwan, a major semiconductor manufacturing hub. PwC identified three possible outcomes: 1) the US continues to restrict advanced semiconductors in China, 2) the US tightens its restrictions on China, and 3) China invades Taiwan. The most likely scenario is that the US keeps limiting China’s access to cutting-edge semiconductors.

China depends on Taiwanese factories for advanced chips, as it lacks the expertise to make them. Despite efforts to acquire Taiwanese companies and establish a technology fund, China has not succeeded in breaking this reliance. As a result, global semiconductor manufacturers increasingly depend on Taiwanese factories.

In the first scenario, where the US continues to restrict China’s access to advanced semiconductors, China will struggle to access Taiwan’s advanced factories, but other supply chains will remain largely intact. Sales of licenses to China may decrease by 20-30% in the planning and design field. The risk of a gradual decline in sales to China is also present in the front-end and back-end processes.

If the US tightens its restrictions on China, as described in the second scenario, China’s semiconductor manufacturing would be disconnected from the global supply chain, causing a severe shortage in China. This would lead to many companies facing financial difficulties and even bankruptcy, especially small and medium-sized specialized equipment manufacturers.

In the event of a military invasion of Taiwan by China, the third scenario, the global supply chain would collapse due to the shutdown of Taiwanese factories that hold 71% of the global market. Many suppliers, including major companies, would face significant financial challenges and could go out of business or withdraw from the semiconductor field.

PwC predicts that the US will continue to restrict cutting-edge semiconductors in China, which would impact the Japanese semiconductor industry in fields like deposition/etching, exposure, and probe inspection. They also emphasize that the semiconductor industry is vulnerable to geopolitical risks and is closely tied to national policies.

PwC also discussed cyberattacks against the semiconductor industry, which can be divided into “information theft” and “destruction.” These attacks could target employee information, technology, or even engineers. Japan faces a high risk of cyberattacks aimed at exploiting advanced technologies and materials that China has been denied access to.

Cyberattacks against the semiconductor industry have already been confirmed by China-based threat actors, often exploiting vulnerabilities in network and security devices. Japanese companies need to take security measures, such as continuous monitoring of cyber threats and evaluation/improvement of security measures based on industry standards.

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