China limits key semiconductor metal. What it means for Durham chipmaker Wolfspeed.
The present and future of Wolfspeed, the fast-growing semiconductor chipmaker in Durham, are closely linked to China.
The company, which produces semiconductors to power appliances like electric cars, fast-charging stations, and military communication equipment, generated $65 million from China in 2020. Two years later, that figure was $211 million, and China surpassed the U.S. as the company’s second largest market behind Europe.
But recent economic and political tensions between the United States and China pose threats, the company acknowledged in its latest annual financial report. And the trade war appears to be escalating.
On July 3, the Chinese government announced it would restrict the exportation of gallium and germanium, two earth metals used in the production of electronics and semiconductors. China is the world’s largest supplier of both materials.
Wolfspeed uses gallium in its wireless communication devices and says it does not purchase any products containing germanium.
Gallium, a silvery and soft metal, is key to Wolfspeed’s future.
“Our potential for growth depends significantly on the adoption of Silicon Carbide and (gallium nitride) materials and device products,” the company said in its April quarterly earnings report.
Yet China’s limitations won’t strongly affect Wolfspeed says company spokesperson Melinda Walker.
“Our primary supply (of gallium) is not sourced from China, so the export restrictions have minimal to no impact to Wolfspeed,” she said. In a public statement on July 17, Walker added that “following an internal review, the company has confirmed that its supply chain will not be impacted by the proposed export restrictions on gallium and germanium.”
Walker also told The News & Observer the company was not impacted by a U.S. Department of Commerce rule imposed last October that barred domestic companies from exporting to China technologies used to manufacture advanced chips.
“All of our IP is based in the US, and so we were not affected by the restrictions in October,” she said.
Walker also pointed out the main focus of the company is not on gallium-based products, but instead silicon carbide, a unique semiconducting material which executives say performs more efficiently than standard silicon chips.
Tariffs, trade and N.C.-China economic ties
While Europe has been Wolfspeed’s top market, China ranked second last year. The country was responsible for 28.3% of Wolfspeed’s total revenue ($746.2 million) — a jump from 13.8% in 2020.
President Joe Biden has maintained the tariffs on billions in Chinese imports first levied by former President Donald Trump. In its April quarterly report, Wolfpseed said these tariffs, along with “any corresponding tariffs or currency devaluations” from China, could hamper demand for its semiconductors.
North Carolina’s overall economy remains connected with China.
According to the Economic Development Partnership of North Carolina, China imported $6.26 billion in North Carolina goods last year, while the state imported $9.37 billion from China.
As part of its global expansion, Wolfspeed has begun to construct a new facility in western Chatham County, near Siler City, that officials anticipate will employ more than 1,800 people by the end of the decade.
The company currently employs roughly 2,500 in the Triangle area, including at its Research Triangle Park headquarters.
Within the broader environment of tariffs and trade restrictions, Wolfspeed has continued to expand its Chinese market. In the three months ending on March 26, the company reported $63.7 million in revenue from China, a 26% increase from the same period the previous year.
This story was originally published July 13, 2023 at 5:30 AM with the headline "China limits key semiconductor metal. What it means for Durham chipmaker Wolfspeed.."
