U.S., engaged in a trade war with China, extends certain leniencies to its allies in Asia

 U.S., engaged in a trade war with China, extends certain leniencies to its allies in Asia

Three big Asian chip manufacturers have received assurances from the U.S. that they may continue operating in China as is for the foreseeable future, albeit considerable technological advancements would be challenging.

A year ago, the Biden administration imposed significant limitations on China's semiconductor sector in an effort to stop Beijing's military technological gains. The endeavor notably alarmed South Korean memory chip leaders Samsung Electronics and SK Hynix, as well as Taiwan Semiconductor Manufacturing Co., the biggest contract chip manufacturer in the world.

The three companies are among the few international chip manufacturers with major manufacturing facilities in China. The businesses were concerned that putting big barriers in their way would harm their bottom lines and disrupt the IT supply chain.

The three businesses received one-year exemptions from the Biden administration in October 2022. However, worries continued, and SK Hynix even raised the prospect of leaving China in the long run if it proved too difficult to maintain operating there.

The South Korean government said on Monday that Samsung and SK Hynix have been recognized as "validated end users," enabling them to import American chipmaking equipment for their current operations in China without first obtaining additional U.S. certification. According to the notification from South Korea's presidential office, the designation has no expiration date.

According to persons involved with the discussions, the two nations have reached an agreement on a list of preapproved chipmaking equipment that would enable Samsung and SK Hynix to keep existing facilities in China and make modest improvements to the manufacturing technology already in use.

According to sources familiar with the U.S. government's actions, TSMC is anticipated to obtain a second one-year waiver similar to the one it got last year. The corporation has been assured by Washington that as long as it doesn't make substantial technical advancements, it may continue to operate in China for the foreseeable future.

It is unknown whether Samsung and SK Hynix would get separate one-year waivers or if TSMC will be certified as a verified end user. Unlike South Korea, Taiwan has not made any public remarks on the situation.

The Bureau of Industry and Security of the U.S. Department of Commerce, which administers export controls and the verified end-user program, refused to comment. The semiconductor sector had long anticipated the Biden administration's approach.

The U.S. decision, according to SK Hynix, will help to stabilize the worldwide semiconductor supply chain. According to Samsung, the uncertainty surrounding its semiconductor business in China has been greatly reduced. A spokesperson for TSMC refused to respond.

Since 2010, according to estimates from the financial company CLSA, South Korea and SK Hynix have spent a combined total of nearly 55 trillion won, or roughly $40.7 billion, into their chip manufacturing facilities in China.

Longer-term prospects for the South Korean companies' manufacturing in China continue to be in doubt. One sort of memory manufacture would need to go further, requiring new gear that China is prohibited from importing. According to Yeon Won-ho of the Korea Institute for International Economic Policy, a government-run think tank, Samsung and SK Hynix must also be careful not to expand their capacity in a way that would be in conflict with the conditions of American subsidies that aim to restrict investment in China.

According to Yeon, a researcher in economic security, "the latest measures lift short-term uncertainties for South Korean chip makers, as they will be able to continue with their current operations in China." However, not all obstacles to Korean companies doing business in China have been removed.

Given the protracted memory market collapse that has squeezed finances, Samsung and SK Hynix would not now feel the need to significantly increase their China output, according to Avril Wu, a Hong Kong-based analyst at TrendForce, a chip-industry analytics company.

On Wednesday, Samsung predicted that operational profit would decrease by around 80% from the same period the previous year. According to analysts surveyed by FactSet, SK Hynix would have a quarter-over-quarter loss of around $1.2 billion.

In terms of the two important types of memory known as NAND flash and DRAM, China is mainly dependent on Samsung and SK Hynix. Chinese competitors are still unable to mass-produce the sorts of sophisticated memory chips required for technological items. After Beijing in May forbade several domestic companies in crucial information infrastructure sectors from purchasing memory chips from U.S.-based Micron Technology, China's dependence only increased.

According to TrendForce, Samsung makes over 40% of its NAND flash memory in China, while SK Hynix makes about 45% of its DRAM and 30% of its NAND flash there. According to TrendForce, Samsung, SK Hynix, and Micron together controlled around 96% of the DRAM industry and 62% of the NAND flash market in the second quarter.

The future course of the South Korean factories in China will continue to be constrained by more U.S.-led policies aimed at the country's semiconductor sector. The U.S. Chips Act subsidy scheme features "China guardrails" that prevent recipients from increasing their semiconductor investments in China above a certain threshold.

Exports of machinery required to make sophisticated chips to China have been banned by the Netherlands and Japan at the United States' insistence. This machinery includes some that SK Hynix uses to make DRAM in China.

According to Sanjeev Rana, a senior analyst at CLSA located in Seoul, based on the sorts of equipment that are probably allowed, the two South Korean chip producers would be able to improve their China operations by one or two generations. But even so, he said, it wouldn't be using the most cutting-edge technology available.

TSMC presently runs factories in Nanjing, in eastern China, producing less sophisticated semiconductors. The business said in April that it was increasing capacity there for producing older 28-nanometer chips.