US plans to restrict semiconductor equipment exports to Chinese producers

Export restrictions being considered by Washington to halt China’s progress in semiconductor manufacturing could come at a substantial cost, experts say, potentially disrupting fragile global chip supply chains – and hurting US companies .

Reuters reported on Monday that the United States is considering limiting shipments of U.S. chipmaking equipment to memory chip producers in China that make advanced semiconductors used in everything from smartphones to data centers.

The restrictions would prevent chipmakers like South Korean giants Samsung Electronics and SK Hynix from shipping new technology tools to the factories they operate in China, preventing them from upgrading factories 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 over the past few decades to produce vital chips for customers including tech giants Apple, Amazon, the owner of Facebook Meta and Google. Besides computers and phones, chips are used in products such as electric vehicles that require digital data storage.

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

The potential for further turbulence – the restrictions have yet to be approved – comes just as a global chip supply shortage that has disrupted businesses from automobiles to consumer devices for more than a year finally shows signs of attenuation. Supply chain adjustments and weakening consumer demand amid a slowing global economy have combined to undo the damage.

But the shortage is not yet fully resolved. Any sign of further disruption could reignite supply uncertainty, triggering a price spike – as seen earlier this year when China imposed COVID-19 restrictions on Xian where Samsung manufactures chips.

Chip-making equipment must be installed and fully tested months before production begins. Any delays in shipping the equipment to China would pose a real challenge to chipmakers as they seek to manufacture more advanced chips in Chinese facilities.

“Many US companies, like Apple, are using Samsung and SK Hynix memory chips. Whatever strategy (South Korean companies) end up choosing 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 seeking comment outside of normal US business hours.


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

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

The facility represents 43% of Samsung’s global NAND flash memory production capacity and 15% of overall global production capacity, according to TrendForce as of the end of 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 in the first quarter behind Samsung and Japan’s Kioxia Holdings, which spun off from Toshiba Corp. .

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


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

Congress last week approved legislation to subsidize the production of semiconductors in the United States. It prohibits any company that receives federal subsidies from investing in certain chip technologies in China during the subsidy period.

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

“Until now, companies have tended to invest in places like China where costs are cheap,” 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 diminishing returns from their multibillion-dollar Chinese factories, which could be forced to manufacture less lucrative chips with older technology.

SK Hynix was unable to upgrade its DRAM memory chip production facility in Wuxi, China, with the latest extreme ultraviolet lithography (EUV) chipmaking machines made by Dutch company ASML, because US authorities do not want advanced equipment used in the process to enter the country. .

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

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

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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