Tech war: US waiver of China export restrictions on advanced semiconductor equipment to South Korea’s Samsung and Hynix to make life harder for rival mainland chip makers

The US waiver is expected to be a big boon for both Samsung and Hynix in the world’s largest semiconductor market
Washington’s action, however, puts rival Chinese memory chip makers like YMTC at a disadvantage in their home market

Semiconductors

Ann Caoin ShanghaiandTracy Quin Shanghai

Published: 7:00am, 11 Oct 2023

Why you can trust SCMP

The US government’s recent decision allowing South Korea’s Samsung Electronics and SK Hynix to buy advanced manufacturing equipment for their semiconductor plants in mainland China is expected to make life more difficult for rival domestic memory chip makers like Yangtze Memory Technologies Co (YMTC), according to analysts.

In a major concession to Seoul, Washington has granted both Samsung and Hynix an indefinite waiver on broad restrictions to export advanced chip-making equipment to the mainland, which currently accounts for about a third of the global NAND Flash memory and DRAM market.

That action will serve as a big boon for the two companies in the world’s largest semiconductor market, according to Liang Zhenpeng of research institute Kandong. “It will stabilise their market share and maintain their competitive advantage in [China’s semiconductor] supply chain,” Liang said.

The waiver is also expected to benefit suppliers of advanced chip-making equipment and materials, while putting rival Chinese memory chip makers like US-blacklisted YMTC at a disadvantage, according to analyst Wang Lifu of semiconductor consultancy ICWise. “Had the US not granted a waiver [to the two South Korean firms], YMTC would have benefited [from demand in the local market],” Wang said.

An SK Hynix chip is seen on a printed circuit board. Photo: Shutterstock

The Biden administration’s latest action has effectively handicapped YMTC and other Chinese chip makers in their home market, following the US Department of Commerce move last October to impose export controls on chip-making machinery to the mainland.

Along with Samsung and Hynix, Taiwan Semiconductor Manufacturing Co, the world’s largest contract chip maker, had earlier secured a one-year authorisation from Washington to continue its operations on the mainland without additional licensing requirements otherwise required by the US Commerce Department. It is unclear whether TSMC will be granted the same indefinite waiver as the two South Korean firms.

The waiver granted to Samsung and Hynix has also come at a time this year when YMTC expected to see improved global demand for NAND Flash memory products on the back of orders from makers of smartphones, servers and personal computers.

YMTC has been forging closer ties with domestic tool suppliers to replace US components in its manufacturing equipment, as American suppliers ceased business with the firm on account of Washington’s restrictions, the South China Morning Post reported last month.

US allows Samsung and SK Hynix to expand their chip plants in China

In the memory chip market, DRAM and NAND Flash products are both highly standardised, which means these are easily replaced by competing products from various suppliers. As such, it is important for memory chip makers to be close to their clients.

Hynix operates a DRAM plant in Wuxi, a city in eastern Jiangsu province and NAND facilities in Dalian, a city in northeastern Liaoning province. It also runs chip packaging facilities in Chongqing.

Samsung has three chip plants in three cities: Xian, capital of northwest Shaanxi province; Suzhou, a city in Jiangsu; and the northern coastal metropolis of Tianjin.

Huawei executive calls for greater adoption of Chinese-made semiconductors

In the second quarter, Samsung saw a 95 per cent drop in profit amid weak global demand for memory chips. Hynix posted an operating loss of 2.88 trillion Korean won (US$2.13 billion) in the same period.

While YMTC operations could be “more at a standstill”, Samsung and Hynix “can breathe a sigh of relief”, said Arisa Liu, research fellow and a director focused on semiconductors at the Taiwan Institute of Economic Research, referring to the previous uncertainty brought by US tech restrictions to the two South Korean firms’ manufacturing operations in mainland China.

Still, Liu said these Korean firms “are unlikely to invest further in [new] factories in China” in spite of gaining “more competitive advantage” in the country because of the US waiver.