The U.S. government has granted permission to three Asian semiconductor companies, Samsung Electronics (KS:005930), SK Hynix, and Taiwan Semiconductor Manufacturing (TSM), to carry on their substantial chipmaking operations in China. This decision comes despite the introduction of export curbs in October 2022 aimed at limiting Beijing's military tech advances.
The Biden administration has provided an indefinite waiver against broader restrictions on the shipment of advanced chipmaking gear to China for Samsung and SK Hynix. This arrangement facilitates these firms' ability to acquire necessary equipment for their Chinese operations. TSM is expected to receive a one-year waiver, similar to the previous year, as long as it refrains from making significant tech upgrades.
Samsung and SK Hynix are recognized as "validated end users" by South Korea's government, which enables them to import U.S. chipmaking equipment for their Chinese facilities without separate approval. They can perform minor upgrades using a preapproved chipmaking equipment list. However, the future of these companies' operations in China remains uncertain due to restrictions on future capacity expansions and tech upgrades.
These companies face challenges from the U.S.'s China guardrails policy that limits semiconductor investments in China. The policy imposes restrictions on expansion in China by semiconductor companies receiving federal funds. Despite these challenges, SK Hynix has considered exiting China if operations become too challenging.
Since 2010, South Korea and SK Hynix have invested approximately $40.7 billion in their China-based chipmaking facilities. China heavily relies on Samsung and SK Hynix for NAND flash and DRAM memory chips, a reliance that increased after Beijing's ban on local firms buying memory chips from U.S.-based Micron Technology (NASDAQ:MU).
Despite being granted waivers amid apprehensions about business disruption due to the new export curbs, Samsung and SK Hynix obtained a one-year waiver in 2022. A curb on the initially proposed terms was lifted, with the term "significant" now defined based on individual company awards rather than monetary value.
Meanwhile, TSMC is expanding its capacity for older 28-nanometer chips in China. The status of TSM as a "validated end user", a status given to Samsung and SK Hynix as per a South Korean presidential office statement, remains ambiguous. These developments come amidst a third-quarter financial slump for the companies.
The future of Samsung and SK Hynix's operations in China remains uncertain as they must adhere to export bans by the Netherlands and Japan.
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