Global Courant
Samsung and SK Hynix, South Korea’s semiconductor titans, have spent more than $52 billion to build up their businesses in China. Doing business with China has long constituted a significant part of their turnover.
But ties between South Korean chip companies and China are strained by geopolitics.
South Korea, which relies heavily on its semiconductor sector for jobs and revenue, is sandwiched between China and the United States, South Korea’s longtime ally, in their trade war over technology.
To limit China’s access to advanced chips that could power its military, Washington has escalated steps to control sales of such technologies. The Biden administration imposed restrictions last October, raising alarms in Seoul and sparking an angry lobby in Washington to minimize damage to South Korea’s semiconductor industry.
A one-year waiver that the companies received in mid-October 2022, which temporarily exempted them from export rules, will soon expire. While it is widely expected that a new waiver will be extended, there is uncertainty as to how long it will last.
“Geopolitical issues have become the biggest risk for businesses,” South Korean President Yoon Suk-yeol said in his speech. June, speaking at a meeting of government officials and business leaders on a national semiconductor strategy. “Companies cannot solve this problem alone,” he said, calling the competition for chips an “all-out war.”
Semiconductor manufacturing requires supply chains that cross national borders, and efforts to impose new regulations on the industry have tested commercial alliances in Asia, Europe and the United States. Few countries have struggled as much with the potential economic disruption caused by trade restrictions as South Korea.
China is not only a major customer of chips from South Korea. Both Samsung and SK Hynix have large production facilities in China.
Semiconductors account for 20 percent of South Korea’s exports. Samsung and SK Hynix have long dominated the market for memory chips, which are used in smartphones and laptops to store data. Samsung sold 36 percent of all memory chips in June and SK Hynix 25 percent, according to data calculated by TrendForce, a market research firm.
Over the past decade, China has received more than half – at one point almost 67 percent – of South Korea’s chip exports. That number dropped to 55 percent last year, according to a calculation of South Korean government data by The New York Times.
Samsung does not provide semiconductor sales figures for China. Partly due to a decline in chip demand and the economic slowdown in China, two of the company’s chip-related subsidiaries in China that disclosed their financial information posted a 35 percent decline in chip and display sales in the first half of this year.
The turnover share of SK Hynix from China peaked in 2019 at almost 47 percent. Last year it shrank to 27 percent, which is still an important part of the company’s business.
“To give up the big market that is China? We will not be able to recover,” Chey Tae-won, chairman of SK Hynix, said at a meeting. press conference in July.
One of the most outspoken South Korean politicians in this area is Yang Hyang-ja, a member of parliament in the National Assembly and former CEO of Samsung. She called the country “a victim” of the trade dispute and proposed tax cuts to help chip makers. Her bill, called the K-Chips Act, passed in March.
“We’re getting a direct hit,” she said.
Samsung uses its facilities in China to produce 40 percent of its NAND chips, one of two types of memory chips that allow devices to store data. SK Hynix produces 30 percent of its NAND chips in China and almost half of its DRAM chips, which enable short-term storage for personal computers and servers.
The companies’ exposure to China is a challenge, said Avril Wu, senior research vice president at TrendForce. “It is not easy to withdraw, but continuing to invest is unwise because no one knows what might happen in the future,” she said.
Samsung said in a statement that its investments were made to meet the needs of global customers and other demands.
Samsung and SK Hynix are not alone in the uncertainty caused by tensions between China and the US. Taiwan Semiconductor Manufacturing Company, the world’s largest chipmaker, is also awaiting word from the U.S. Department of Commerce on the fate of its export control exemptions.
The Commerce Department declined to comment, however referred to a statement from Don Graves, deputy secretary of commerce, who said during a trip to Korea last week that the United States would “do everything” it could to ensure companies could continue operations.
For Samsung and SK Hynix, an exemption of a year or less could slow the companies’ development, experts say.
Advances in chip manufacturing are happening rapidly, and companies must invest in equipment, components and research to stay competitive. The extensive facilities where chips are produced cost tens to hundreds of millions of dollars.
“Instead of wondering what will happen year after year, extending the exemption for two to three years at a time would make people more at ease,” said Lim Hyung-kyu, a retired Samsung executive who is more has worked for the company for more than thirty years. an engineer and his chief technology officer.
Regardless of the outcome of the waiver decision in Washington, U.S. export controls and the push to clamp down on China’s technology supply chain could force Samsung and SK Hynix to change their business strategies in China.
One possibility, said Song Myung-sup, semiconductor analyst at Hi Investment & Securities, is that the companies could use their factories in China to serve customers in China. They could also shift the focus of their production to less advanced products, he said, to avoid U.S. restrictions.
According to Mr Song, uncertainties surrounding the curbs and a short-term drop in demand for French fries have already stalled the construction of an SK Hynix factory in the Chinese city of Dalian. Neither SK Hynix nor Samsung have plans to invest more in China at this time, he said.
SK Hynix said construction of its Dalian factory is proceeding as planned, but it has reduced the aforementioned capital expenditure this year.
For its part, the South Korean government has said it will expand its long-term domestic chip manufacturing capacity by creating a semiconductor “mega cluster” in Yongin, a 40-minute drive from a giant Samsung chip manufacturing campus. Samsung has said it will invest $228 billion over the next 20 years.
In addition, SK Hynix promised one last year Investment of $11 billion at a new factory in South Korea that the company has begun to build.
Restrictions on doing business with China and promises of stimulus from the U.S. government are also encouraging more investment in the United States. Samsung said it will spend $17 billion on a factory in Taylor, Texas, while SK Hynix has committed $15 billion for a U.S. chip packaging plant and research center and is looking for a site for the factory.
South Korea faces the risk of economic retaliation from China for aligning itself too closely with the United States.
South Korea waited nearly a year before reluctantly joining an initiative proposed last year by President Biden to form a semiconductor “Chip 4” alliance with the United States, Japan and Taiwan.
Ms Hyang, the South Korean lawmaker, said the US-China technological rivalry is destined to change the global chip-making supply chain. South Korea must accept that reality, she said.
But she worries about the pressure it will put on South Korea, using a common idiom that describes her country in relation to two superpowers. “The shrimp’s back can burst in a fight between whales,” she said.
Ana Swanson contributed reporting.
