[At Risk Korean Advanced Industries] US Trying to Overtake China... Korean Semiconductors Only Watching the Whale

U.S. Commerce Department Bans Exports of Semiconductor Manufacturing Equipment Below 14nm to China
Continued Pressure on China Following CHIPS Act and Chip 4 Alliance
Samsung Electronics and SK Hynix Avoid Impact on Local Operations in China
Long-Term Outlook 'Bleak'... Expected Strengthening of U.S. Measures to Contain China

[Asia Economy Reporter Kim Pyeonghwa] The United States' efforts to curb China's semiconductor ambitions are reaching a peak. Following the introduction of laws restricting global semiconductor companies' investments in China, export controls on advanced semiconductor equipment are being expanded from individual companies to the entire industry. Samsung Electronics and SK Hynix, which have semiconductor factories in China, are closely monitoring the increasing business risks, but there are concerns about negative impacts in the long-term outlook. Meanwhile, U.S. semiconductor companies are launching aggressive offensives to capitalize on the benefits.

According to the semiconductor industry and foreign media on the 14th, the U.S. plans to announce next month export controls banning the export of semiconductor manufacturing equipment used in processes of 14 nanometers (nm, one billionth of a meter) or below to China without approval from the Department of Commerce. This follows earlier letters sent to semiconductor equipment companies such as KLA, Lam Research, and Applied Materials restricting equipment exports, and represents an attempt to expand export restrictions to all semiconductor equipment companies.

Last month, the U.S. government instructed semiconductor companies including Nvidia and AMD not to export high-performance graphics processing units (GPUs) for artificial intelligence (AI) to China without permission. It is expected that this export regulation may be formalized in the upcoming controls. The intention is to fundamentally block China's semiconductor ambitions, including system semiconductors.

As the U.S. tightens regulations, Samsung Electronics and SK Hynix, which have factories in China, are facing deeper concerns. Samsung Electronics operates a NAND flash factory in Xi'an and a back-end (test and packaging) factory in Suzhou. SK Hynix has a DRAM factory in Wuxi, a back-end factory in Chongqing, and a NAND flash factory in Dalian acquired from Intel. These are mainly memory semiconductor factories using equipment around 17 nm. Since there are no foundry (semiconductor contract manufacturing) factories operating below 14 nm, there is no immediate impact on local operations. However, there are expectations that producing advanced memory semiconductors in China may become difficult in the future.

The semiconductor support law (Chips and Science Act, CSA) enacted in the U.S. last month and the Chip4 discussions?a semiconductor supply chain consortium led by the U.S. including Korea, the U.S., Japan, and Taiwan?are also adding burdens to Chinese operations. In particular, the semiconductor support law provides a 25% tax credit to companies building semiconductor factories in the U.S., but includes a guardrail clause preventing companies receiving related subsidies from investing in China for the next 10 years.

Yeon Wonho, head of the Economic Security Team at the Korea Institute for International Economic Policy (KIEP), analyzed, "It is highly likely that the U.S. will continue to strengthen its restrictions on China's semiconductor industry. Domestic semiconductor companies currently face no major issues producing in China with existing equipment, but upgrading production facilities to manufacture next-generation semiconductors may face constraints."

Within the domestic semiconductor industry, negative views dominate the long-term outlook. Kyung Kyehyun, President of Samsung Electronics' Device Solutions Division, said on the 7th at the Pyeongtaek campus, "Due to U.S.-China conflicts, there may be long-term difficulties when installing new equipment in Chinese fabs (factories). Since China accounts for over 40% of the total IT supply, it is difficult for us to lose such a market, and there are many important customers."

Unlike Korea, the U.S. semiconductor industry is continuing advanced facility investments with government support. Micron Technology announced a $40 billion investment by 2030 following the semiconductor support law and recently began constructing a memory factory in Boise, Idaho. They plan to start mass production of DRAM in 2025 using advanced equipment such as extreme ultraviolet (EUV) lithography.