US Aiming to Contain China, Korea Faces Challenges [US, Precision Strike on China’s Semiconductor Sector]

Kkiin Korean Semiconductor Industry Faces Difficult Situation
US Strengthens Regulations to Block Semiconductor Growth in China
China Is Korea's Largest Semiconductor Export Market...Samsung and Hynix Operate Factories in China

[Asia Economy Reporters Sunmi Park and Chaeseok Moon] As the United States steps up regulations to curb the growth of China's semiconductor industry, Korean semiconductor companies with factories in both the U.S. and China have found themselves in a difficult position. Companies like Samsung Electronics and SK Hynix acknowledge that although the specifics of the U.S. measures to counter China are not yet finalized, making it hard to gauge the exact impact, it is widely agreed that if the standoff between the two countries over semiconductors continues, Korea will inevitably suffer damage caught in the middle.

According to industry sources on the 3rd, the reason Korean semiconductor companies must tread carefully amid the U.S.-China power struggle is that China is Korea's largest semiconductor export market, and these companies operate semiconductor production plants in both the U.S. and China, making them directly affected by government-level support and regulations. Currently, Samsung Electronics operates a NAND flash factory in Xi'an, China, and also runs a testing and packaging post-processing plant in Suzhou.

SK Hynix also has a DRAM factory in Wuxi, Jiangsu Province, and a NAND factory in Dalian, Liaoning Province, acquired from Intel. In the U.S., Samsung Electronics is investing $17 billion to build a foundry plant in Taylor, Texas, and plans to invest an additional $192.1 billion to construct 11 more factories in Texas. SK Hynix recently announced plans to invest $15 billion to establish advanced packaging manufacturing facilities and a research and development (R&D) center in the U.S.

The semiconductor industry first expects that the regulatory measures restricting production of system semiconductors at 28nm (nanometer) or below in China will likely have limited immediate impact on Samsung and SK semiconductor plants operating in Xi'an and Wuxi, China. This is because Samsung Electronics and SK Hynix's Chinese plants focus on memory semiconductors and post-processing rather than system semiconductors, placing them outside the direct scope of the regulations. However, an industry insider stated, "Since the focus of these measures is on blocking China's development of advanced semiconductor processes, we must consider the possibility of expanded regulatory scope in the future," adding, "Even if only system semiconductors at 28nm or below are currently targeted, the regulations could extend to equivalent memory semiconductors and post-processing sectors."

The U.S. raising export barriers on semiconductor equipment to China also affects Korean companies. Generally, EUV (extreme ultraviolet) lithography equipment is essential for processes at 7nm or below, while DUV (deep ultraviolet) lithography equipment can be used for 10 to 14nm processes. However, without advanced equipment, yield and profitability significantly decline. If the U.S. enforces the expanded export control from 10nm or below to 14nm or below processes, not only Chinese semiconductor companies but also most global semiconductor firms producing in China will fall under the regulatory scope.

Fortunately, Samsung Electronics has already completed the import of semiconductor equipment to its Xi'an plant, so the immediate impact may be minimal, but it is now impossible to bring in additional equipment to expand production lines. Similarly, SK Hynix faces a growing likelihood of prolonged inability to introduce EUV equipment to its Wuxi plant. Hynix has signed a contract worth 4.75 trillion KRW with Dutch equipment maker ASML to sequentially introduce EUV equipment, but the continued ban on deploying this equipment in its Chinese plants remains.

Furthermore, if the U.S. government implements export restrictions on American semiconductor manufacturing equipment used to produce 128-layer or higher NAND flash memory to Chinese memory semiconductor companies such as Yangtze Memory Technologies Co. (YMTC), as reported by foreign media, Samsung and SK Hynix, which operate memory factories in China, will also be directly affected.

Concerns are rising that if these regulations persist long-term, domestic companies will face significant burdens. This is because the exception clause for "Legacy chips" specified in the semiconductor law's guardrails is ambiguous, offering no guarantee that the scope of regulation will not expand to cover more semiconductors. Kim Yang-pyung, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, "Among the various U.S. regulations on China, the tightened restrictions on equipment imports will have the greatest impact on Korean companies with Chinese facilities," adding, "Once a company receives subsidies under the U.S. semiconductor law, it will be restricted from investing in China for the next ten years, which could hinder efforts to upgrade Chinese facilities."