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Samsung, SK avoid worst-case scenario as US 'guardrails' are less stringent than feared

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Samsung Electronics' memory chip plant in Xi'an, China / Courtesy of Samsung Electronics
Samsung Electronics' memory chip plant in Xi'an, China / Courtesy of Samsung Electronics

By Baek Byung-yeul

Samsung Electronics and SK hynix have avoided the worst-case outcome from the U.S. CHIPS Act ― which embodies Washington's attempt to limit Beijing's chip technology development ― because details of the regulation did not specify the banning of increases in output through technological upgrades at their chip factories in China, industry officials said Wednesday.

The U.S. Department of Commerce announced on Tuesday (U.S. time) details of the proposed "guardrails" for the CHIPS for America Incentives Program, which involves $52 billion in funding.

Under the new restrictions, chip companies that receive subsidies in the U.S. are banned from expanding semiconductor production by more than 5 percent for advanced chips and 10 percent for older technology in China for 10 years after receiving the benefits.

However, expanding the amount of semiconductor production per wafer was not included in the defined expansion of production capacity, giving Korean chip makers a breather. A wafer is used in the semiconductor manufacturing process as a substrate for chips.

This means that the U.S. seeks to place a cap on the number of semiconductors produced by Korean and other companies in China by building more plants. But the rule does not cover an increase in the number of chips per wafer through technological advances.

The U.S. CHIPS Act provides subsidies to companies producing semiconductors in the U.S., regardless of their nationality, in order to expand chip production on home soil. This regulation applies not only to foreign chip companies such as Samsung, SK and TSMC of Taiwan, but also to U.S. companies such as Intel.

In regard to the U.S. government's announcement, Samsung and SK did not offer an opinion on the matter. However, spokespersons of both companies said: "We will closely review the content of the announcement and establish how we will respond to it in the future."

Samsung Electronics operates chip factories in Xi'an and Suzhou in China, while SK hynix has facilities in Wuxi and Dalian. Samsung and SK hynix produce some 40 percent of NAND flash and about half of their global DRAM chips in China, respectively.

A chip industry official, who requested anonymity, said, "This announcement by the U.S. government reduced pressure on Korean companies producing semiconductors in China. Also, the Korean companies are set to avoid the worst-case scenario, in which they have to shut down production facilities in China."

"Korean companies have been concerned about the possibility that the U.S. CHIPS Act could include expanding production capacity through technological upgrades. This is because if it becomes impossible to increase production through technological upgrades, they cannot maintain competitiveness with Chinese companies," the official added.

The U.S. Department of Commerce will seek public opinions on the proposed guardrails for 60 days and the Ministry of Industry and Energy said it will continue to closely communicate with the U.S. during this period, saying it "will help chip companies here receive sufficient support under the U.S. CHIPS Act."

Industry Minister Lee Chang-yang said the government has tried to convey requests of Korean chip companies to the U.S. government, saying the heart of the request from Korean companies was the resolution of uncertainties in their businesses in China.

"As the result came out yesterday, uncertainties and various concerns have been largely resolved," the minister told reporters. "There are no specific restrictions on technology upgrades, so the basic requirements for companies to feel relieved have been met," Lee added.

Baek Byung-yeul

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