(WSJ) The United States has informed three major Asian chipmakers that they can maintain their current operations in China for the foreseeable future, although significant technology upgrades would prove difficult.
The Biden administration imposed significant restrictions on China’s semiconductor industry a year ago, aiming to curb Beijing’s military advances in advanced technologies. The effort has particularly spooked South Korean companies Samsung Electronics and SK Hynix, which dominate the memory chip sector, as well as Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker.
The three companies are among the few foreign chipmakers with major production sites based in China. Companies feared that placing significant barriers to their operations there would hurt their bottom lines and disrupt the technology supply chain.
The Biden administration granted one-year waivers to the three companies in October 2022. But concerns persisted, with SK Hynix even raising the possibility of leaving China in the long term if it became too difficult to continue its activities there.
On Monday, the South Korean government said Samsung and SK Hynix had been designated as “validated end users,” which would allow them to import U.S. chipmaking equipment for their existing China-based facilities without having to apply for approval. separate approval in the United States. The designation has no end date, the South Korean presidential office said in the statement.
The two countries agreed on a list of pre-approved chipmaking equipment that would allow Samsung and SK Hynix to maintain their China-based facilities and make minor production technology upgrades current, according to sources close to the negotiations.
TSMC is expected to benefit from another one-year waiver, like the one it received last year, according to sources familiar with the US government’s actions. Washington told the company it could maintain operations in China for the foreseeable future as long as it did not make significant technology upgrades.
It is unclear whether TSMC will be designated as a validated end user or whether Samsung and SK Hynix will receive a separate one-year waiver. Taiwan, unlike South Korea, has not publicly commented on the issue.
The U.S. Commerce Department’s Bureau of Industry and Security, which implements the export restrictions and validated end-user program, declined to comment. The Biden administration’s decision had been widely anticipated by the chip industry.
SK Hynix said the US decision would help stabilize the global semiconductor supply chain. Samsung said uncertainties surrounding its China-based chip business had been significantly lifted. A TSMC spokeswoman declined to comment.
Samsung and SK Hynix have collectively invested about 55 trillion won, equivalent to about $40.7 billion, in their China-based chip manufacturing facilities since 2010, according to the securities firm’s plans CLSA.
For South Korean companies, questions remain about the long-term prospects of their China-based production. Further advances in producing one type of memory would require new machines excluded from China. Samsung and SK Hynix should also remain alert to capacity expansions that could violate the terms of U.S. subsidies aimed at limiting investment in China, said Yeon Won-ho of the Korea Institute for International Economic Policy, a think tank. audience.
“The latest measures remove short-term uncertainties for South Korean chipmakers, as they will be able to continue their current operations in China,” said Yeon, who studies economic security. “But any restrictions affecting Korean businesses do not [in China] have been resolved. »
For now, Samsung and SK Hynix would see no need to expand production in China, given the prolonged crisis in the memory market that has strained their finances, said Avril Wu, an analyst based in China. Taipei at TrendForce, a chip market analysis company. farm.
On Wednesday, Samsung forecast a drop of about 80% in its third-quarter operating profit from a year earlier. Analysts surveyed by FactSet expect SK Hynix to post a loss of about $1.2 billion for the quarter compared to a year earlier.
China relies heavily on Samsung and SK Hynix for the two main forms of memory called NAND Flash and DRAM. Chinese competitors are not yet capable of large-scale production of the types of advanced memory chips they need for their technology products. China’s dependence has only deepened after Beijing in May banned some local companies in key information infrastructure sectors from purchasing memory chips from U.S. firm Micron Technology.
Samsung produces about 40% of its NAND flash memory in China, while SK Hynix produces about 45% of its DRAM and 30% of its NAND flash memory in the country, according to TrendForce. In the second quarter, Samsung, SK Hynix and Micron together accounted for about 96% of the DRAM market and about 62% of the NAND flash market, TrendForce reported.
Further U.S. moves targeting China’s semiconductor industry will continue to limit the future direction of South Korean factories in China. Washington has placed Chinese guardrails on the U.S. Chips Act subsidy program, which prevent those who receive the funding from expanding their semiconductor investments in China beyond a defined limit.
The Netherlands and Japan, at the request of the United States, have banned exports to China of equipment critical to advanced chip manufacturing, including some that SK Hynix uses to produce DRAM in China.
According to Sanjeev Rana, CLSA’s Seoul-based senior analyst, depending on the types of equipment likely approved, the two South Korean chipmakers would be able to modernize their China operations by a generation or two. But, he added, it would still be far from being the most advanced technology in the industry.
TSMC currently operates facilities for less advanced chips in the eastern Chinese city of Nanjing. In April, the company announced it was increasing its manufacturing capacity there for older 28-nanometer chips.
Source: Wall Street Journal by Jiyoung Sohn and Yang Jie Updated October 11, 2023 at 10:25 p.m. ET
Appeared in the October 12, 2023 print edition under the title “US, in chip war with China, extends pauses for Asian allies.”