[Chip Talk] Samsung and SK Worry About US Negotiations Despite Lobbying Record $10 Million

Demand for Sharing Financial and Technical Security Information
South Korean Semiconductor Companies Pushed to Extreme Situations

As the United States pushes South Korea to join its semiconductor restrictions against China in the ongoing hegemonic conflict, Samsung Electronics and SK Hynix face a tough survival challenge if they fail to leverage their North American government relations capabilities. To build factories worth tens of trillions of won and receive subsidies under U.S. pressure, they must risk not only disclosing financial information but also potential leaks of technological secrets. In the future, any investment in China will require intense negotiations and obtaining consent from the U.S. government. During these negotiations, Samsung and SK are effectively dealing with the U.S. government without support from the South Korean government.

On the 28th of last month (local time), the U.S. Department of Commerce announced guidelines for the CHIPS Act. It established the principle that profits earned from factories within the U.S. must be shared with the U.S. government. Companies receiving subsidies exceeding $150 million (approximately 200 billion KRW) are required to share a certain amount of their profits with the U.S. government. It is expected that the U.S. will demand that these excess profits be spent on semiconductor workforce development, research and development (R&D) complexes, and other related areas. However, the specific uses for the excess profits have not yet been disclosed.

The guidelines also include provisions requiring responsibility for factory employee welfare. Companies must build on-site daycare centers near factories and construction sites or support local childcare providers. Detailed childcare support plans must be submitted to U.S. authorities. Financial plans, including cash flow, internal rate of return, and profitability indicators, are also subject to submission.

Gina Raimondo, U.S. Secretary of Commerce.
Photo by AFP Yonhap News

What makes the situation more complicated is that U.S.-based Micron is a major competitor of Samsung Electronics and SK Hynix. While detailing the CHIPS Act, the U.S. stated its intention to attract semiconductor factories from overseas companies, including those from South Korea, to the U.S. government believes that memory semiconductors produced by companies like Micron are essential for strengthening high-performance computing ecosystems such as supercomputers.

The guidelines also include restrictions on South Korean companies' investments in China. The CHIPS Act guardrails stipulate that companies receiving U.S. subsidies will face limitations on new investments in China for the next ten years. This could force companies to relocate facilities built in China to factories in South Korea or the U.S. Samsung Electronics currently operates the Xi'an NAND flash and Suzhou back-end process factories, while SK Hynix runs the Wuxi DRAM, Dalian NAND, and Chongqing back-end process factories. Approximately 30% of semiconductor sales from Samsung Electronics and SK Hynix come from China.

Samsung Electronics and SK Hynix now bear the burden of directly negotiating follow-up matters such as the guardrails with the U.S. government. This has led to criticism that the South Korean government failed to exercise adequate negotiating power before the detailed provisions of the U.S. semiconductor law were announced. In reality, the companies are left to handle the situation on their own. Attention inevitably focuses on how well they have honed their North American government relations capabilities.

In March last year, Samsung Electronics appointed Mark Lippert, former U.S. Ambassador to South Korea, as Vice President and Head of External Affairs for its North American division. They also recruited Kwon Hyuk-woo, former Director of the U.S. Trade Division at the Ministry of Trade, Industry and Energy, as Senior Director in charge of global government relations for the Device Solutions (DS) division. SK Group appointed Kim Jeong-il, former Director General (Grade 1) at the Ministry of Industry, as Head of North American government relations last year. They deployed former diplomats from South Korea, the U.S., and Japan to manage risks. The fact that the U.S. announced stringent details of the CHIPS Act despite mobilizing former officials indicates that they failed to fully persuade the U.S. government.

Samsung Electronics and SK Hynix have invested record-high lobbying funds. According to data from the U.S. nonprofit organization OpenSecrets, Samsung spent $5.79 million (approximately 760 million KRW) on lobbying in the U.S. last year, while SK Hynix’s U.S. subsidiary and Solidigm (formerly Intel’s NAND flash division) spent $5.27 million (approximately 690 million KRW). Combined, this amounts to $11.06 million (approximately 1.35 billion KRW). A Samsung Electronics official stated, "It is difficult to disclose the scope of activities, negotiation partners, and details of the North American government relations organization."