Over the past couple of years, China and the US have been involved in a good old fashioned “tech race”. And now, China has announced its most significant step in the global Tech War, China’s first tech policy. So, what does it mean for investors in US chip companies?

China “First” Tech Policy

Currently Chinese processor makers use a mixture of chip architectures including Intel’s x86, ARM and homegrown ones, while operating systems are derived from open-source Linux software.

But on 24 March, China introduced new guidelines for its local companies using tech products from the US. This policy requires Chinese companies to phase out the use of semiconductors produced by US chip companies such as AMD and Intel. The aim is to fully replace any foreign made tech with homegrown solutions by 2027!

In addition, China’s “first” policy wants to sideline Microsoft’s Windows operating system.

This move from China comes as no surprise…

After all, the US has imposed sanctions on a growing number of Chinese companies on national security grounds. The US has also banned exports of advanced chips and chip-making technology to China.

And of course, The US has been aiming to boost domestic semiconductor output and reduce reliance on China and Taiwan with the 2022 Chips and Science Act.

In response, China’s state testing agency, China Information Technology Security Evaluation Center, published a list of “safe and reliable” processors and operating systems.

They were all from Chinese companies especially Huawei and state-backed group chip company, Phytium.

There’s no doubt the march away from foreign hardware will dent US companies like dominant PC processor makers, Intel and AMD.

China was Intel’s largest market last year, providing 27% its $54 billion in sales. Meanwhile, China provides around 15% of AMD’s $23 billion in sales.

It also could hurt sales from other companies like Broadcom, Micron, Qualcomm and others who provide chips to China’s market.

But the risk to software provider Microsoft’s revenues is limited.

While, Microsoft doesn’t report on China-specific sales, president, Brad Smith revealed to the US Congress that the country provided just 1.5% of revenues.

For tech and AI investors, this new China first tech policy could derail US chip companies’ future revenue and profit growth.

And it’s just another major risk that investors must consider when investing in tech.

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