Samsung Electronics’ chip plant in Xi’an, China / Courtesy of Samsung Electronics
Samsung Electronics and SK hynix appear to be breathing a sigh of relief over the U.S. CHIPS and Science Act’s guardrails as the regulation, which aims to restrict China’s chip development technology, limits the expansion of advanced semiconductor production capacity to no more than 5 percent in China, according to industry officials and experts, Sunday.
Experts and officials said the worst-case scenario of Korean chipmakers being unable to do business in China has been averted, and negotiations to loosen the production expansion restrictions should continue.
The Act provides a total of $39 billion in semiconductor production subsidies to encourage chip makers to manufacture chips in the U.S., but includes a guardrail provision to prevent the benefits of the subsidies from going to China.
On Sept. 22, the U.S. Department of Commerce announced the finalized guardrails on the Act, meaning chip companies that receive subsidies in the U.S. are banned from expanding production by more than 5 percent for advanced chips and 10 percent for older technology in foreign countries of concern, which includes China, after receiving the benefits.
If chip companies expands chip production beyond the provisions in China, they must return the full amount of subsidies received from Washington. The guardrails announced on Sept. 22 are largely unchanged from the draft released in March.
Since the announcement of the draft last March, the Korean government and domestic chip companies have pushed for the expansion of advanced semiconductor production to be doubled from 5 percent. They have also pushed for a looser standard for legacy chips, which are produced using older technology. But these demands have not been met.
SK hynix’s chip plant in Wuxi, China / Courtesy of SK hynix
Experts, however, said many of Seoul's requests were reflected in the revised guardrails.
Samsung Electronics operates chip factories in Xi’an and Suzhou in China, while SK hynix has facilities in Wuxi and Dalian. Both companies produce around 40 percent of their NAND flash and about half of their global DRAM chips in China, respectively.
With such a high dependence on the Chinese market, Kim Dae-jong, a professor of business administration at Sejong University, said that the guardrails were a fortuitous decision for Korean companies and the government.
“It is a fortuitous decision that Samsung and SK will be able to increase the production of advanced semiconductors in their Chinese facilities by 5 percent. Among the total exports of Korea, semiconductor account for 20 percent, and 60 percent of chip exports goes to China and Hong Kong. Neither the government nor the domestic companies can afford to abandon the Chinese market and the announcement means that trade with China can at least be maintained,” Kim said.
“It is a welcome step that reflects feedback from the industry since the March draft was released,” a local chip industry official said on condition of anonymity.
The March draft defined chip production capacity as the number of wafers per month, but the guardrails changed the definition to the number of wafers per year, given that production volumes fluctuate with business conditions.
Another industry official said “Washington’s Sept. 22 announcement will require time for the local chip industry to review the details,” another official in the local industry said adding that “this is something we will have to wait and see on, as some of the rules have been changed in response to the industry and the government’s opinion.”
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