As the US looks to impose new restrictions on China’s chips, turmoil looms in global markets

By Joyce Lee

SEOUL (Reuters) – Export curbs Washington is considering to halt China’s advances in semiconductor manufacturing could come at a significant cost, experts say, potentially disrupting fragile global supply chains for chips and hurting U.S. companies.

The United States is considering limiting shipments of US chipmaking equipment to Chinese memory chip producers who make advanced semiconductors used in everything from smartphones to data centers, Reuters reported on Monday.

The restrictions will prevent chipmakers such as South Korean giants Samsung Electronics and SK Hynix from shipping new tech gadgets to factories operating in China, preventing them from upgrading factories serving customers around the world.

Samsung and SK Hynix, which control more than half of the global NAND flash memory chip market, have invested heavily in China in recent decades to produce vital chips for customers including tech giants Apple, Amazon, Facebook Meta and Google. In addition to computers and phones, chips are used in products such as electric cars that require digital data storage.

“Samsung’s production in China alone accounts for more than 15% of global NAND flash production… If there is any disruption to production, it will drive up chip prices,” said Lee Min Hee, an analyst at BNK Securities.

The potential for new disruptions – restrictions have yet to be approved – comes just as the global chip supply shortfall that has disrupted businesses from cars to consumer appliances for more than a year is finally showing signs of abating. Supply chain adjustments and weak consumer demand amid the global economic slowdown have combined to repair the damage.

But the shortage has not yet been fully resolved. Any signs of new disruptions could reignite supply uncertainty, driving up prices — as we saw earlier this year when China imposed COVID-19 restrictions in Xian where Samsung makes chips.

Chip manufacturing equipment must be fully installed and tested months before production begins. Any delays in shipping equipment to China will present a real challenge to chipmakers as they strive to manufacture more advanced chips in China’s facilities.

“Many US companies, like Apple, use Samsung and SK Hynix memory chips,” a BNK Securities analyst told me. “No matter what strategy (South Korean companies) ultimately choose, it will have global implications.”

Samsung and SK Hynix declined to comment. Apple, Amazon, Meta and Google did not respond to emails requesting comment outside of normal US business hours.

Ambitions and complications

In Samsung’s memory chip operation in Xian, central China, which is one of the country’s largest foreign chip projects, the company has invested a total of about $26 billion since it started on-site in 2012, including chip production as well as testing and packaging.

Analysts said the tech giant makes 128-layer NAND flash products in Xian, which are chips that store data in devices such as smartphones and personal computers, as well as in data centers.

The facility accounts for 43% of Samsung’s global NAND flash memory production capacity and 15% of total global production capacity, according to TrendForce late last year.

If the US campaign is approved, it could also complicate SK Hynix’s ambition to expand its presence in the NAND market where it ranked third as of the first quarter behind Samsung and Japan’s Kioxia Holdings, which spun off from Toshiba Corp.

SK Hynix late last year completed the first phase of its $9 billion purchase of Intel’s NAND business, including its Dalian, China NAND manufacturing facility.

China Strategies

The move the United States is considering is one of several recent signs of deepening tensions between Beijing and Washington over the tech sector.

Last week, Congress approved a law to support semiconductor production in the United States. Any company receiving federal subsidies is prohibited from investing in certain chip technology in China during the subsidy period.

Analysts and industry sources said escalating tensions may force Samsung and SK Hynix to review Chinese investment strategies.

“So far, companies have tended to invest in countries like China, where costs have been cheap,” said Kim Yang-jae, an analyst at Daol Investment & Securities.

“This will no longer be the only consideration. The biggest change this potential frontier will bring will be where to build the next chip factories.”

They may also face potentially diminishing returns from their multibillion-dollar Chinese factories, which may be stuck making older, less profitable technology chips.

SK Hynix was unable to upgrade its DRAM chip production facilities in Wuxi, China with the latest ultraviolet (EUV) chip making machines made by Dutch company ASML because US officials did not want to use advanced equipment in the process to enter the country.

EUV machines are used to make more advanced and smaller chips that are used in high-end devices such as smartphones.

(Reporting by Joyce Lee; Editing by Myung Kim and Kenneth Maxwell)

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