[US Midterm Elections] South Korean Semiconductors 'Closely Watched'... Concerns Over Worsening China Business

Republicans Secure House Majority in US Midterm Elections
US-China Hegemony Competition Intensifies in Semiconductor Industry
Concerns Over Increased Sanctions Amidst Hardline Confrontation

[Asia Economy Reporter Kim Pyeonghwa] With the Republican Party taking control of the House of Representatives, which holds legislative power, in the U.S. midterm elections, attention is focused on whether there will be a shift in the stance toward China. In the semiconductor industry, concerns are emerging that the firm confrontation between the U.S. and China could impact the domestic industry.

According to the semiconductor industry on the 10th, domestic semiconductor companies including Samsung Electronics and SK Hynix are paying close attention to changes in the U.S. stance toward China following the midterm elections. Since the Republicans have taken control of the House, there is speculation that measures to check China could be strengthened. Samsung Electronics and SK Hynix produce about 40% and 50% respectively of their NAND flash and DRAM in China. Given the significant proportion of their business in China, they are inevitably vulnerable to impacts if the U.S. intensifies semiconductor sanctions against China.

The industry believes that the immediate impact will not be significant. However, as the U.S. and China continue their technological hegemony competition in the semiconductor sector, there are concerns that additional sanctions could be imposed if a hardline stance is reinforced. The recent confirmation of Xi Jinping’s third term, signaling long-term rule, and his confrontational stance against U.S. semiconductor sanctions also increase the likelihood of such scenarios.

The U.S. has strengthened export controls on advanced semiconductor equipment targeting China but decided to grant a one-year exemption for domestic companies. However, there is an assessment that it is now difficult to expect further extensions of this exemption. In such a case, opinions suggest that companies may have no choice but to consider withdrawing from the Chinese market in the long term.

Regarding this, SK Hynix President Noh Jong-won said during a conference call after the Q3 earnings announcement on the 26th of last month, “If the one-year exemption is not granted and licenses must be obtained for each piece of equipment, the memory situation could become difficult,” adding, “If fab operations become difficult, we could consider various scenarios such as selling fabs and equipment or bringing equipment into Korea.”

Earlier, the U.S. Department of Commerce announced on the 18th of last month that it would control exports to China of equipment related to DRAM below 18 nanometers (nm, one billionth of a meter), NAND flash with 128 layers or more, and logic semiconductors below 14 nm. However, Samsung Electronics and SK Hynix, which have semiconductor factories in China, were exempted from these controls for one year.

Concerns are also growing within the domestic semiconductor equipment industry, which has a high proportion of business in China. Although they are not immediately affected by the regulations, they must closely monitor the situation as additional sanctions could arise. The fact that the U.S. is deepening semiconductor regulations on China and recently increasing participation from allies such as Japan in these regulations is also seen as a worrying factor.