Samsung and SK Hynix rethink China exposure following US Chips act

Samsung Electronics and SK Hynix are re-evaluating their investments in China, as the leading Korean chipmakers respond to incoming US restrictions on the production of advanced semiconductors.

The Chips and Science Act passed by congress last week, which envisages $52bn in grants to support advanced chip manufacturing in the US, also contains qualified “guardrails” prohibiting recipients of US federal funds from expanding or upgrading their advanced chip capacity in China for 10 years.

The provisions have led Samsung and SK Hynix to rethink their exposure to China, according to people familiar with the views of both companies.

A senior Korean official added that over time, several Korean investments in chip manufacturing in China were likely to be “abandoned”. “If China is unhappy, they will have to take it up with the US,” said the official.

The moves suggest Washington’s efforts to encourage the world’s leading chipmakers to pivot away from China and towards the US are bearing fruit.

“The guardrails against China will accelerate Korean chipmakers’ shift to the US from China,” said Kim Young-woo, head of research at SK Securities in Seoul and an adviser to the Korean government on semiconductor policy.

A SK Hynix semiconductor plant in Icheon, South Korea
A SK Hynix semiconductor plant in Icheon, South Korea. The company said in reference to the US Chips and Science Act that it was ‘closely monitoring the situation’ © SeongJoon Cho/Bloomberg

“They have been rethinking their strategies because of the US-China technology war and they are now tilting further towards the US because of geopolitical risks.”

Kim added that Korean groups such as Samsung and SK Hynix “will build more US plants because they cannot mass-produce cutting-edge chips without US equipment and technology. If they have to make a choice between the US and China, they have no choice but to opt for the US”.

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The Biden administration has used export controls, investment screening and generous subsidies for non-Chinese companies in an effort to increase domestic chip production and make it harder for China to obtain advanced semiconductor technology.

The measures are part of a wider campaign to secure US supply chains and slow down Beijing’s military modernisation efforts.

Yeo Han-koo, a former Korean economic official who served as South Korea’s trade minister until May this year, said that the “recalibration” of Korean chipmakers’ strategy vis-à-vis the US and China had already begun.

Samsung Electronics, the world’s largest memory chipmaker, announced last year it was investing $17bn in a new plant in Texas in a bid to catch up with Taiwanese rival TSMC in the foundry sector. Joe Biden visited the Korean conglomerate’s Pyeongtaek facility during a visit to South Korea in May.

Last month Chey Tae-won, chair of SK Hynix parent SK Group, held a virtual meeting with the US president to announce $22bn in new chip, EV battery and green technology investments in the US, including a new advanced chip packaging plant.

SK Hynix’s Dram memory chip plant in Wuxi in eastern China is widely regarded as the Korean-owned facility most vulnerable to the effects of US restrictions.

“This new economic order is still being formulated, and the companies are re-evaluating and recalibrating their strategy accordingly,” said Yeo.

Lee Jae-min, a law professor at Seoul National University and an expert in international trade disputes, said the US was using subsidies to “lure” Korean chipmakers into its regulatory orbit.

“Once they receive US subsidies, they will come under stronger US control for their decision-making and business activities, which will restrict their investment and production in China,” said Lee.

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“Chipmakers like Samsung and SK Hynix have to constantly upgrade their plants to produce cutting-edge chips, but it is difficult to upgrade their Chinese facilities without introducing high-tech equipment.”

In a statement, SK Hynix said of the Chips and Science Act: “As the legislation was recently passed in the House and some details remain publicly undisclosed, we are closely monitoring the situation.”

Samsung declined to comment.