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As US plans new Chinese chip curbs, turmoil threatens fragile global market

by Nick Erickson
August 3, 2022
in Business
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As US Plans New China Chip Curbs, Turmoil Looms For Fragile Global Market
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As US sees new curbs for Chinese chips, turmoil looms for global market

Export restrictions considered by Washington to halt China’s advances in semiconductor manufacturing could come at significant cost, experts say, and could potentially disrupt fragile global chip supply chains — and harm US businesses.

Reuters reported Monday that the United States is considering limiting shipments of US chip-making equipment to memory chip manufacturers in China that make advanced semiconductors used in everything from smartphones to data centers.

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 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 chips that are vital to customers including tech giants Apple, Amazon, Facebook and others. owner Meta and Google.

In addition to computers and telephones, the chips are used in products such as electric vehicles that require digital data storage.

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“Samsung’s Chinese manufacturing alone accounts for more than 15% of global NAND flash production…If there is a manufacturing breakdown, chip prices will rise,” said Lee Min-hee, an analyst at BNK Securities.

The potential for new turmoil — the curbs yet to be approved — comes just as a global chip shortage that has disrupted businesses from cars to consumer devices for over a year is finally showing signs of easing.

Supply chain adjustments and weakening consumer demand amid the slowing global economy have combined to repair the damage.

But the shortage has not yet been fully resolved. Any signs of new disruption could revive supply uncertainty, which could lead to a price hike – as seen earlier this year when China imposed COVID-19 restrictions in Xian, where Samsung manufactures chips.

Chip making equipment must be installed and fully tested months before production starts.

Any delay in shipping the equipment to China would pose a real challenge to chipmakers as they want to produce more advanced chips in Chinese facilities.

“Many US companies, such as Apple, use memory chips from Samsung and SK Hynix. Whatever strategy (the South Korean companies) choose, it will have global implications,” said BNK Securities analyst Lee.

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

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 breaking ground at the site in 2012, including chip manufacturing and testing and packaging.

The tech giant makes 128-layer NAND flash products in Xian, analysts said, chips that store data on devices such as smartphones and PCs, as well as in data centers.

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

The US action, if approved, could also hamper SK Hynix’ ambition to expand its presence in the NAND market, where it ranks third as of the first quarter, behind Samsung and Japan’s Kioxia Holdings, which originated from Toshiba Corp.

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

Chinese strategies

The move being considered by the United States is one of the recent signs of rising tensions between Beijing and Washington over the tech sector.

Congress last week passed legislation to subsidize semiconductor manufacturing in the United States. It prohibits any company that receives federal subsidies from investing in certain chip technology in China during the subsidy period.

Rising tensions could force Samsung and SK Hynix to rethink their investment strategies in China, analysts and industry sources said.

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

“That will no longer 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 declining revenues from their multi-billion dollar Chinese factories, which could be stuck making older technology, less lucrative chips.

SK Hynix has failed to upgrade its DRAM memory chip manufacturing facilities in Wuxi, China, with the latest extreme ultraviolet lithography (EUV) chip machines made by Dutch ASML, as US officials do not want advanced equipment to enters the country.

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

Tags: ChinesechipcurbsDailyExpertNewsfragileGlobalmarketplansthreatensTurmoil

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