U.S. Chips Act Raises Biz Uncertainty for Samsung, SK hynix

SEOUL, March 2 (Korea Bizwire) — Washington’s Chips Act and its requirements for companies receiving incentives are likely to put South Korean chipmakers’ ability to navigate business uncertainties and balance between the United States and China to the test.

The Biden administration on Tuesday announced conditions for subsidies under the US$53 billion act, designed to revitalize the American chip industry, secure supply chains and keep China’s technology advances in check.

Washington reaffirmed that it will not tolerate any recipient of the federal money expanding their semiconductor business in China and potentially helping one of the largest chip markets get easier access to advanced chip technology.

“First and foremost, the Chips and Science Act is about national security … Manufacturing more chips here at home will help secure our national security future for decades to come,” Commerce Secretary Gina Raimondo wrote on Twitter on Wednesday.

The act requires “successful applicants to enter into an agreement not to engage in any significant transaction involving the material expansion of semiconductor manufacturing capacity in any foreign country of concern for the 10-year period beginning on the date of the award.”

When violated, applicants will have to return the full amount of an award, the department said, adding it expected to publish detailed guidance on national security guardrails soon.

Samsung Electronics Co. and SK hynix Inc., the world’s two largest memory chip makers, have significant semiconductor manufacturing operations in China, with Samsung producing some 40 percent of its NAND flash and SK hynix manufacturing about half of its global DRAM chips in China.

In the U.S., Samsung is building a $17 billion chip facility in Taylor, Texas, and SK hynix has said it planned to select a site for a semiconductor packaging plant there in the first half.

Being squeezed between the intensifying U.S.-China tech rivalry is nothing new for the two chipmakers.

Last October, Washington announced a set of measures that restrict exports of advanced semiconductor manufacturing equipment to companies in China.

The sweeping export curbs, among other things, demand companies receive a license for equipment exports to Chinese firms that make advanced chips, such as DRAM chips that are 18 nanometers and below, NAND flash chips with 128 layers or more, and logic chips 14 nm and below.

The two firms have received a one-year waiver from the U.S. government through close consultation and discussion with Washington.

The export curbs and Tuesday’s announcement regarding the Chips Act’s grant conditions are two different things, but essentially they are seen by Korean companies as a move to slow China’s technological and military advancement.

Another condition causing jitters in South Korea is that the act requires companies to share part of their profits and limit stock buybacks and dividends.

Recipients of more than $150 million in direct funding will be required “to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections above an established threshold” according to the Commerce Department.

“In giving out the funding, we’ll be implementing a number of safeguards to ensure companies that receive funding are holding up their end of the bargain,” Raimondo reportedly said at a press briefing. “We are not writing blank checks.”

South Korean’s Ministry of Trade, Industry and Energy said Wednesday it will continue to closely consult with the U.S. government to relay South Korean chipmakers’ concerns and positions on the issue.

Greg Roh, head of technology research at HMC Investment & Securities, expected the security guardrails to have negative impact on the Chinese operations by Samsung and SK hynix.

“I think it will be harder for them to upgrade their Chinese factories (to advance-node chips in the future),” he said.

The Chips Act casts “great uncertainty” on the future of Korean chipmakers, wrote Kim Sun-woo, an analyst at Meritz Securities, in his recent report, by putting them in a position where they have to share sensitive tech and business information with Washington in order to get subsidies.

And their business strategy in China could also be thrown into confusion.

“As there is a high possibility that investment in China can be restricted in the future, Samsung and SK hynix might have to decide whether to maintain their operations there and even to consider an exit strategy,” he said.

Samsung said, “We are reviewing the terms outlined in the notice.” SK hynix declined to comment.

“We are currently reviewing the matter,” SK hynix said.

(Yonhap)