Abstract: On February 8, according to South Korean media Pulse by Maeil Business News Korea, citing industry sources, Samsung Electronics and SK Hynix executives have recently traveled to the United States, hoping to obtain exemptions from the Chips and Science Act (CHIPS Act) and extend the export control exemption period for Samsung and SK Hynix semiconductor factories in China.
News on February 8, according to South Korean media Pulse by Maeil Business News Korea quoted industry sources broke the news that Samsung Electronics and SK Hynix executives have recently traveled to the United States, hoping to obtain exemptions from the Chips and Science Act (CHIPS Act) and extend the export control exemption period for Samsung and SK Hynix semiconductor factories in China.
In August 2022, the US Chips and Science Act officially went into effect. The bill plans to provide about $52.7 billion in subsidies to the U.S. semiconductor industry over five years, mainly in the fields of manufacturing and R&D subsidies for semiconductor companies, semiconductor research institutions, defense chip technology, international cooperation in semiconductor technology, and semiconductor talent training. In addition, a 25% tax credit will be provided for semiconductor manufacturing investments. However, the bill also explicitly requires semiconductor companies that receive subsidies from the U.S. Chip Act to prohibit the construction or expansion of advanced semiconductor factories in Chinese mainland for the next decade. This also means that Samsung, SK Hynix, TSMC and other wafer manufacturers want to build factories in the United States to obtain the subsidy, then it will be difficult to continue to invest in semiconductors in the mainland in the next 10 years.
In addition, on October 7, 2022, the United States introduced a new export control policy for semiconductors to China, restricting the ability of wafer manufacturers located in Chinese mainland to obtain the manufacturing equipment required for advanced logic process chips of 16/14nm and below, 128-layer NAND flash memory chips, and DRAM memory chips of 18nm half-pitch or smaller, unless licensed by the U.S. Department of Commerce. This includes the fabs of foreign-funded companies such as Samsung and SK Hynix in Chinese mainland.
Although on October 11, SK Hynix and Samsung Electronics have obtained permission from the US Department of Commerce, and the two companies can obtain the supply of US semiconductor equipment without any additional procedures in the next 1 year, which also makes the production of their fabs in Chinese mainland temporarily not affected by the ban. But will they still be able to get an exemption after a year? This is obviously a big problem.
According to the data, Samsung has a wafer foundry in Austin, Texas, and is currently planning to invest $17 billion to build a new advanced process plant in Taylor, Texas. In addition, it was reported that Samsung plans to build 11 new fabs in Texas in the next 20 years. SK Hynix also plans to spend $15 billion in advanced packaging manufacturing and chip-related research and development in the United States, and this year plans to choose an advanced packaging plant to be mass-produced in 2025~2026, which can create 1,000 jobs.
At the same time, Samsung also has memory chip factories in Xi'an and Suzhou, Chinese mainland. Among them, the Xi'an plant is Samsung's largest investment project in China, with a total investment of 27 billion US dollars so far. The output value of Samsung Semiconductor's Xi'an plant will exceed 100 billion yuan in 2022. SK Hynix has fabs in Chinese mainland Wuxi and Dalian (acquired from Intel). As of 2020, SK Hynix has invested more than 20 billion US dollars in China, has more than 4,000 employees in Wuxi, and completed the construction of the second factory C2F in 2019. As the C2F project continues to advance, the Wuxi plant will assume more than 40% of SK Hynix's DRAM memory semiconductor production.
Research data shows that in the third quarter of last year, Chinese mainland accounted for 29.2% and 30% of the revenue of SK Hynix and Samsung Electronics, respectively. It is reported that Samsung and SK Hynix are upgrading their fabs in Chinese mainland and need to import a large number of equipment.
Obviously, for Samsung and SK Hynix, building factories in the United States to obtain subsidy support from the "Chip Act" has to give up continuing to invest in new or expanded fabs in Chinese mainland. Since Samsung and SK Hynix have already made a lot of investment in Chinese mainland, it is impossible to give up like this. Similarly, it is not surprising that Samsung and SK Hynix are not willing to abandon the generous subsidies of the US Chip Act, and apply for exemptions from the restrictions of the US "Chip Act".
At the same time, by October this year, the 1-year exemption period license issued by the United States to Samsung and SK Hynix last year will also expire, under the US semiconductor export ban to China, if Samsung and SK Hynix cannot continue to extend the exemption period, it means that Samsung and SK Hynix will not be able to continue to invest in semiconductors in Chinese mainland (including new or expanded production capacity, upgrading the original production line, etc.), which will affect their future semiconductor investment plans in the mainland. Therefore, Samsung and SK Hynix need to clarify as soon as possible whether the exemption period can be extended after the expiration of the one-year exemption period previously obtained.
It is worth noting that after the recent US, Japan and the Netherlands reached an agreement on semiconductor export restrictions to China, South Korea may become the next target of pressure from the United States.
As previously reported by Firstpost, South Korea's semiconductor trade relationship with Chinese mainland, while very strong, is now under pressure due to the United States' commitment to comprehensively limit the Chinese mainland's technological strength. So far, South Korea has not joined the "Chip 4" semiconductor alliance with Japan and Taiwan at the request of the United States, nor has it followed the United States, Japan, and the Netherlands in restricting the export of advanced semiconductor manufacturing equipment to Chinese mainland.
However, Kim Yang-paeng, a senior researcher at the Korea Institute of Industry and Trade (KIET), pointed out that if the United States decides to sanction South Korean semiconductor companies that do business with Chinese mainland, it will make it difficult for South Korea to confront it, because the United States holds many core technology patents, as well as many key design tools, equipment and material suppliers, especially for advanced processes.
Data show that as China's economic growth slows sharply and the Sino-US trade war intensifies, South Korea's semiconductor equipment exports to Chinese mainland fell sharply last year. According to statistics from the Korea Customs Service, South Korea's semiconductor equipment exports to China last year were only about US$1.37 billion, down 39.33% from US$2.258 billion in 2021. After the scale of exports fell in the first half of last year, it did not rebound in the second half of the year and continued to shrink.
An industry insider said that Chinese mainland had previously purchased a large number of South Korean equipment in hopes of replacing American equipment, but the US semiconductor ban on China introduced in October last year changed everything. Because if the core process equipment cannot be obtained, then the wafer foundry cannot operate at all, and the demand for Korean equipment and second-hand equipment is bound to cool.
Editor: Xinzhixun - Ronin Sword
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