Investing.com -- Jefferies analysts weighed in on the latest US semiconductor export controls targeting China in a note Tuesday, highlighting that the measures are "better than feared" but cautioning they are "likely not the end" of restrictions.
The update, published on Monday, adds 140 Chinese companies to the Entity List, subjecting them to foreign direct product rule (FDPR) restrictions.
However, two developments mitigated fears: "CXMT, a DRAM player, is not included in the Entity List," allowing its estimated $5-6 billion 2025 capital expenditure to proceed, and "Dutch and Japan are exempted from FDPR," meaning Chinese firms can still source semiconductor production equipment (SPE) from these countries.
Jefferies projects a significant impact on China's semiconductor investments, with a potential 22% reduction in 2025 capex, equivalent to a $10 billion cut.
This aligns with guidance from Western SPE companies. While Japan and the Netherlands may benefit from these exemptions, Jefferies believes Chinese firms could face near-term challenges.
"Most Chinese SPE players indicate their component/material localization rate is 85%-90%, and even if some are from the US, non-US options may impact yield/productivity in the near term," the note stated.
The measures include a ban on discrete high-bandwidth memory (HBM) 2 and above but allow HBM packaged with GPUs that meet US computing power limits.
Jefferies highlighted, "NVDA's H20 will not be banned," adding that NVIDIA (NASDAQ:NVDA) is likely preparing upgraded solutions for the Chinese market in 2025.
Jefferies also noted that while this round of controls lacks a complex definition for advanced AI chips, additional restrictions are anticipated.
"We believe it will come in a separate announcement in the next two weeks," the analysts said, cautioning that a potential Trump administration or Congress in 2025 could escalate the measures further.