Source: Content compiled from Semiconductor Industry Watch (ID: icbank) for WSJ, thanks.
The US has informed Asia's three largest chipmakers that they can maintain their current operations in China for the foreseeable future,
though major technology upgrades will be difficult, the Wall Street Journal reported.
A year ago, the Biden administration imposed major restrictions on China's semiconductor industry aimed at curbing Beijing's advances in advanced technology.
The move particularly alarmed Samsung Electronics and SK Hynix of South Korea, which dominate memory chips, and TSMC, the world's largest contract chipmaker.
The three companies are among a handful of foreign chip makers with large-scale production bases in China. The companies worry that erecting significant barriers to
their operations there would hurt their profits and disrupt the tech supply chain.
The Biden administration granted one-year waivers to the three companies in October 2022. But concerns persist, even raising the possibility of moving out of China in
the long run if it becomes too difficult to continue operating there.
On Monday, the South Korean government said it and SK Hynix had been designated as "verified end users," which would allow them to import American chipmaking
equipment for their existing Chinese factories without separately seeking American approval. There is no end date for the designation, the presidential office said in a statement.
The two countries have agreed on a list of pre-approved chipmaking equipment that would allow Samsung and SK Hynix to maintain their Chinese plants and make small upgrades
to current production technology, according to people familiar with the matter.
TSMC is expected to receive another one-year exemption, as it did last year. Washington has told the company it can maintain its business in China for the foreseeable future as long as
it does not make major technology upgrades.
It was not immediately clear if TSMC would be designated as a verified end-user or if Samsung and SK Hynix would be granted separate one-year exemptions. Unlike South Korea, Taiwan
has not publicly commented on the matter.
The Commerce Department's Bureau of Industry and Security, which implements export restrictions and verified end-user programs, declined to comment. The Biden administration's move
had been widely anticipated by the chip industry.
SK Hynix said the U.S. decision would help stabilize the global semiconductor supply chain. Samsung said the uncertainty for its Chinese chip business had been significantly removed. A spokesman
for TSMC declined to comment.
Brokerage firm CLSA estimates that Samsung and SK Hynix have collectively invested about 55 trillion won ($40.7 billion) in their chipmaking plants in China since 2010.
For South Korean companies, questions remain about the long-term future of their production in China. A machine that further advances in memory production would require (EUV lithography)
is banned from China. Yeon Won-ho of the Korea Institute for International Economic Policy, a state-run think-tank, says Samsung and SK Hynix must also be wary of capacity expansion that could violate the terms
of American subsidies aimed at curbing investment in China.
"The latest measures remove short-term uncertainty for South Korean chipmakers because they will be able to continue their current operations in China," said Yeon, who studies economic security.
"But not all the restrictions affecting Korean companies [in China] have been resolved."
Avril Wu, a Hong Kong-based analyst at chip market TrendForce, said there was no immediate need for Samsung and SK Hylux to expand production in China, given the financial strain caused by the
prolongedmemory market slump.
On Wednesday, Samsung forecast that third-quarter operating profit would drop about 80 percent from a year earlier. Factset, a survey of analysts, expects SK Hynix to lose about $1.2 billion
this quarter compared with a year earlier.
China relies heavily on Samsung and SK Hynix for its two main forms of memory, NAND flash and DRAM. Chinese rivals haven't been able to mass-produce the types of advanced memory
chips needed for tech products.China's dependence became even greater after Beijing in May barred certain local companies in critical information infrastructure industries from buying memory chips from Micron
Technology of the United States.
Samsung makes about 40% of its NAND flash memory in China, while SK Hynix makes about 45% of its DRAM and 30% of its NAND flash memory in the country, according to TrendForce.
Samsung, SK Hynix and Microncombined held about 96% of the DRAM market in the second quarter, and about 62% of the NAND flash market, TrendForce said.
Other U.S. -led measures targeting China's semiconductor industry will continue to limit the future direction of South Korean factories in China. Washington has attached so-called
"China guardbars" to the U.S. Chip Act
subsidy program, which limit semiconductor investments in China by companies receiving funds beyond set limits.
At the urging of the US, the Netherlands and Japan have banned exports to China of equipment necessary to make advanced chips, including those used by SK Hynix to produce DRAM in China.
Depending on the type of equipment that may be approved, the two South Korean chipmakers will be able to upgrade their operations in China by one or two generations, said Sanjeev Rana,
a senior analyst at CLSA in Seoul. But, he said, it is still far from the best technology in the industry.
TSMC currently operates less advanced chip factories in the eastern Chinese city of Nanjing. In April, the company said it was expanding capacity to produce older 28-nanometer chips.