| U.S. Secretary of State Antony Blinken, right, shakes hands with Wang Yi, then-head of the Foreign Affairs Commission of the Communist Party of China's Central Committee, during their bilateral meeting on the sidelines of the Association of Southeast Asian Nations (ASEAN) Foreign Ministers' Meeting in Jakarta, July 13. AFP-Yonhap |
US considers asking Korean chip duo to expand limit on expansion of 'mature' chip output in China: Washington sources
By Kim Yoo-chul
It is no exaggeration to say that "legacy chips" are everywhere from military applications to automobiles, aircraft, home appliances, medical devices and consumer electronics.
In the semiconductor industry, legacy, or mainstream chips are typically made using verified and established manufacturing processes. The clear determination about what exactly legacy chip means is still pending, however, the CHIPS and Science Act clarifies them as those manufactured with 28 nanometer (nm), or larger, technology.
Regarding the determination of "cutting-edge" semiconductors, no official definition has yet been made, but can be assumed to apply to processing technology at or below 5nm.
Naturally, global chip leaders including Korea's Samsung Electronics, SK hynix (SK) and Micron Technology of the U.S. are investing more in the wider and stable production of chips using much thinner and advanced technologies as cutting-edge chips are more expensive than those made with mature technology.
But a point of concern is that while cutting-edge chips are widely used in today's most critical tech products and systems, any bottlenecks in the availability of legacy chips could possibly hit all downstream economic activities in advanced economies as today's backbone industries are still dependent upon systems supported by these semiconductors.
The significance of legacy semiconductors was also brought home by supply chain disruptions during the peak of the COVID-19 pandemic, causing substantial financial strains for a lot of companies.
Within that context, policymakers in the U.S. and EU have begun to acknowledge that they were too slow to respond to China's ambitious aim to dominate the global legacy chip industry. Given the fact that these are still essential for military equipment, policymakers in Washington are on track to scramble applicable measures aimed at interfering in China's increased production of them, Washington sources told The Korea Times.
"If China dominates the global legacy chip sector as it did in the solar industry, then that would be a disaster from the U.S. and its allies' standpoint. If China controls this market, then that means the U.S. would have to depend on China-initiated supply chains, which have yet to exist," said one Washington source familiar with the matter, asking not to be identified due to the sensitivity of the issue.
"But given the wider use of legacy chips in all backbone industries, China's monopoly over global supplies, if that happens, can create national security risks," he added.
| Samsung Electronics' headquarters in Suwon, Gyeonggi Province / Reuters-Yonhap |
The Chinese government provides huge subsidies to companies there, positioning them to initiate a "price war," thereby driving foreign competitors into bankruptcy as seen previously in the solar industry. China had offered huge subsidies to its domestic solar panel industry, and political analysts say Beijing is "prepared" to repeat that with legacy chips.
Data provided by SEMI, an industry association representing the interests of companies involved in electronics design and manufacturing supply chains, show that China will increase the number of semiconductor manufacturing lines for mature 8 inch and 12 inch wafers to 26 by 2026. Market research firm IBS expects China will increase its share in the sector to 40 percent by 2025.
The prime issue for Korea is how to avoid any pitfalls from Washington's shift when it comes to assessing the value of legacy chips.
'Another exemption' for Samsung, SK
Despite increasing fears and concerns about China potentially flooding the sector with mature chips using 28nm, 45nm and/or even older technology, the U.S. is considering providing an additional exemption to Samsung and SK to manufacture legacy chips on U.S. semiconductor equipment in China.
A one-year exemption given by the U.S. commerce department to the Korean chip duo is set to expire in October this year. Korea's trade ministry earlier asked the U.S. to provide an extra one-year exemption for the export of semiconductor gear to China to manufacture legacy chips there.
Samsung's plant in the Chinese city of Xian accounts for 40 percent of its total NAND-type chip output, and uses mature 128-layer tech. SK, which operates chip fabrication lines in Wuxi, produces DRAM chips below 17nm and NAND chips using 96- and 144-layer tech, categorized as legacy ones.
"The U.S. will probably provide another exemption for Samsung and SK but there is a desire for Washington and Seoul to present a united front against Beijing's actions against foreign memory chip makers, particularly Micron Technology," Zack Cooper, a former White House National Security Council (NSC) official and a senior fellow at the American Enterprises Institute (AEI), responded.
| Morris Chang, left, the founder of the Taiwan Semiconductor Manufacturing Company (TSMC), arrives at the opening of TSMC global R&D center in Hsinchu, Taiwan, July 28. Reuters-Yonhap |
While U.S. Commerce Secretary Gina Raimondo said "all options are on the table," stressing Washington views Beijing's expansion into mature chips as a problem that needs to be worked out with its key Asian allies, Cooper said he doesn't think the Biden administration will move quickly to align policies.
"Both the U.S. and Korea are likely to continue to discuss coordination on a variety of semiconductor-related export controls, but it will take time to align policies," he stressed.
If the U.S. wants to better protect its economy and avoid any "negative essential" from the impact of China's accelerated push into the production of legacy chips, policymakers need to think more about the importance of "specialized legacy chips" rather than categorizing chips as just advanced or less-advanced, according to Washington sources.
"The U.S. is considering asking Samsung and SK to possibly limit the expansion of legacy chip output in China. Plus, yes, it's a very feasible scenario for Washington to ask them to reduce the production of specialized legacy chips at their plants in China," another source in Washington added. Representatives at Samsung and SK declined to comment.
Alan Estevaz, undersecretary of commerce for industry and security at the U.S. Department of Commerce earlier hinted at the possibility of the U.S. government applying a new quota plan to be placed on SK and Samsung's Chinese plants after the expiration of the one-year license that exempts the duo from sanctions, allowing them to continue to produce chips there.
"We are working with those companies (Samsung and SK) on the way forward," Estevaz was quoted as saying at a recent industry event. "It will likely be a cap on levels that you grow to in China." But he failed to specify whether the "new quote plan" was referring to a ceiling on the volume of production by Samsung and SK in China, or limits on what they are allowed to produce there.