Export restrictions being considered by Washington to halt China's advances in semiconductor manufacturing could come at a substantial cost, experts say, potentially disrupting fragile global chip supply chains - and hurting US businesses.
Reuters reported on Monday that the United States is
considering limiting shipments of American chipmaking equipment to memory chip
producers in China that make advanced semiconductors used in everything from
smartphones to data centres.
The curbs would stop chipmakers like South Korean giants
Samsung Electronics and SK Hynix from shipping new technology tools to
factories they operate in China, preventing them from upgrading plants that
serve 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 chips that are vital to customers including tech giants
Apple, Amazon, Facebook owner Meta, and Google. As well as computers and
phones, the chips are used in products like electric vehicles that require
digital data storage.
"Samsung's China production alone accounts for more
than 15 percent of global NAND flash production ... If there's any production
disruption, it will make chip prices surge," said Lee Min-hee, analyst at
BNK Securities.
The potential for fresh turmoil - the curbs have yet to be
approved - comes just as a global chip supply shortage that has disrupted
businesses from autos to consumer devices for more than a year is finally
showing signs of easing. Supply chain adjustments and weakening consumer demand
amid the slowing global economy have combined to repair damage.
But the shortage has yet to be fully resolved. Any signs of
fresh disruption could rekindle supply uncertainty, triggering a price surge -
as seen earlier this year when China imposed COVID-19 restrictions in Xian
where Samsung manufactures chips.
Chipmaking equipment has to be installed and fully tested
months before production is due to start. Any delay in shipping the gear to
China would pose a real challenge to chipmakers as they seek to manufacture
more advanced chips in China facilities.
"Many US companies, like Apple, use Samsung and SK
Hynix memory chips. No matter what strategy (the South Korean firms) end up
choosing, it will have global implications," said BNK Securities analyst
Lee.
Samsung and SK Hynix declined to comment. Apple, Amazon,
Meta, and Google didn't respond to emails seeking comment outside regular US
business hours.
Ambitions, complications
In Samsung's memory chip operation in Xian, central China,
one of the largest foreign chip projects in the country, the company has
invested a total of about $26 billion since it broke ground on the site in
2012, including chip production as well as testing and packaging.
The tech giant makes 128-layer NAND flash products in Xian,
analysts said, chips that store data in devices such as smartphones and
personal computers, as well as in data centres.
The facility accounts for 43 percent of Samsung's global
NAND flash memory production capacity and 15 percent of the overall global
output capacity, according to TrendForce late last year.
The US crackdown, if approved, could also complicate SK
Hynix's ambition to expand its presence in the NAND market where it is ranked
third as of first quarter behind Samsung and Japan's Kioxia Holdings, which was
spun out of Toshiba.
SK Hynix completed late last year the first phase of its $9
billion (roughly Rs. 71,070 crore) purchase of Intel's NAND business, including
its Dalian, China NAND manufacturing facility.
China strategies
The move being considered by the United States is one of
several recent signs of deepening tensions between Beijing and Washington over
the tech sector.
Congress last week approved legislation to subsidise
semiconductor production in the United States. It bars any company that
receives federal subsidies from investing in certain chip technology in China
during the subsidy period.
The deepening tensions could leave Samsung and SK Hynix
having to review strategies on China investments, analysts and industry sources
said.
"Until now, companies tended to invest in countries
like China, where costs were cheap," said Kim Yang-jae, analyst at Daol
Investment & Securities.
"That's no longer going to be the only consideration.
The biggest change these potential limits will bring will be where the next
chip factories are built."
They could also face potentially diminishing returns from
their multi-billion dollar China plants, which could be stuck making
older-technology, less lucrative chips.
SK Hynix has not been able to upgrade its DRAM memory chip
production facilities in Wuxi, China with the latest extreme ultraviolet
lithography (EUV) chipmaking machines made by Dutch firm ASML as US officials
do not want advanced equipment used in the process to enter the country.
The EUV machines are used to make more advanced and smaller
chips that are used in high-end devices such as smartphones. © Reuters
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