With the Biden administration finalizing the national security guardrails of the CHIPS and Science Act's (CHIPS Act) funding allocations and restrictions, South Korean semiconductor companies may have to transform their operations in China and leverage their mature-node capacities there to target products for domestic demand, according to Korean news media.
There are diverse opinions regarding the final rules' impacts on Samsung and SK Hynix. But one thing is certain: the companies that wish to be subsidized by CHIPS Act funding for their capacity expansion in the US will have to accept the conditions set by the Biden administration and refrain from material capacity expansions in China for the next 10 years.
The Department of Commerce press release showed that the subsidy recipients' advanced processing node expansion in "countries of concern" will be limited to under 5% while capacity expansion of mature nodes such as 28nm and above is limited to under 10%. The Ministry of Trade, Industry and Energy (MOTIE) of South Korea has expressed that it will continue to cooperate with the US to ensure Korean semiconductor companies' normal business operations in China.
South Korean semiconductor manufacturers realized that the final rule of CHIPS Act guardrails announced by the Biden administration maintains the restrictions on capacity expansions for companies receiving subsidies from CHIPS Act funds, according to Korean media, which said the Korean semiconductor companies have advised the Biden administration to allow advanced node capacity expansion up to 10%, instead of 5%. The advice was not heeded. According to Korean media reports, expansion of no more than 5% means they can only maintain the current production level, and thus will have an impact on their business competitiveness in China. No further investment in advanced-node semiconductor product manufacturing is allowed in China.
Since the Guardrail final rules were expected to have no surprises, the whole industry feels relieved, according to Asia Economy, a Korean media outlet. For example, although SK Hynix produces DRAM and NAND in China and has advanced DRAM manufacturing processes, it does not need to increase production in China immediately, and NAND has not produced more than 200 layers of advanced products in China, so it is less affected by the US restrictions.
However, since currently 85% of the output of the Korean semiconductor company's mature-node capacity in China is sold to be used in end products assembled in China, they will receive less negative impact on this part of their business.
A South Korean microelectronics and packaging expert pointed out that South Korean semiconductors should reconsider their strategies and focus more on the domestic-oriented market demands in China. For example, China's EV market is expanding and has a huge demand for power management devices, which are mainly produced with mature-node technologies. The expert suggests that South Korean companies can change the product portfolios in their China fabs to meet the local market demand.
