"US Equipment Restrictions on Samsung and SK's China Plants? Low Likelihood and Limited Impact"

On June 24, Korea Investment & Securities stated that, in response to recent foreign media reports suggesting that the Donald Trump administration in the United States may strengthen regulations on the import of U.S.-made equipment into Samsung Electronics and SK Hynix's semiconductor factories in China, it views this as a "strategic pressure card" by the U.S. and maintains its "overweight" recommendation on the semiconductor sector.

Chae Minsook, a researcher at Korea Investment & Securities, explained in a report titled "Semiconductors and Related Equipment - No Need to Respond to Every U.S. Fear Marketing Tactic" released on this day, "Just like mutual semiconductor tariffs, from a supply chain perspective, we believe the likelihood of these measures actually being implemented is low. The impact on domestic semiconductor-related companies would also be limited."

Previously, The Wall Street Journal (WSJ) reported that the U.S. government is considering revoking the export permit (VEU, Verified End-User) previously granted to the Chinese semiconductor factories of Samsung Electronics, SK Hynix, and TSMC. The VEU system allows the supply of U.S. equipment and technology to these factories without separate export permits. If revoked, Samsung Electronics and SK Hynix would have to obtain approval from the U.S. Department of Commerce for each individual shipment of U.S. equipment into their Chinese factories.

Researcher Chae noted, "Mentioning the possibility of VEU revocation can be interpreted more as a strategic pressure card by the U.S. rather than an immediate restrictive measure," adding, "There is also significant opposition within the U.S. government." According to the WSJ report, opponents within the administration are concerned that "revoking the VEU could actually help Chinese companies grow and strengthen the Chinese government's control over these factories."

She pointed out, "If the introduction of equipment and technology to Samsung Electronics and SK Hynix fabs is blocked, it could disrupt the global memory supply chain and cause memory prices to rise, ultimately damaging major U.S. customers by increasing their component procurement costs." The Samsung Electronics Xi'an fab accounts for about 40% of Samsung Electronics' NAND production capacity. SK Hynix's Wuxi fab is responsible for 40% of SK Hynix's DRAM production capacity, while the Dalian fab handles 30% of its NAND production capacity.

Researcher Chae also assessed that the stock price correction following these reports was excessive. As the reports emerged over the weekend Korean time, stock prices of U.S. technology and semiconductor equipment companies declined. She analyzed, "While the strengthening of U.S. sanctions against China and China's efforts to increase semiconductor self-sufficiency are medium- to long-term risk factors, in the short term, the likelihood of immediate damage to the operation and investment of Samsung Electronics and SK Hynix's Chinese factories is limited." She added, "Excessive stock price declines due to short-term policy noise are likely to be reversed," and maintained her "buy" and "overweight" recommendations on the semiconductor sector.