US-China Dispute Intensifies... Korean Semiconductor Caught in Turmoil

US Imposes Restrictions on Chinese Foundry 'SMIC' Following Huawei
Samsung and Hynix Anticipate Benefits Amid Rising Uncertainty

[Asia Economy Reporter Dongwoo Lee] The global semiconductor industry has been thrown into turmoil as the U.S. government has extended regulations from Huawei to SMIC, China's largest foundry (semiconductor contract manufacturing) company. While domestic companies such as Samsung Electronics and SK Hynix, competitors in the industry, may gain short-term benefits as the U.S. continues to target critical points in China's semiconductor industry, the uncertainty in the global semiconductor market is also deepening.

According to foreign media including the U.S. Wall Street Journal (WSJ) on the 28th, the U.S. Department of Commerce recently sent a letter to domestic computer chip manufacturers notifying them that they must obtain a separate license to export certain technologies to SMIC. The Department of Commerce warned that exporting products to SMIC and its subsidiaries could pose an "unacceptable threat" as they might be used for military purposes. Accordingly, semiconductor equipment companies such as Lam Research and Applied Materials will need permission from the Department of Commerce to supply equipment or components containing U.S. technology to SMIC.

The industry expects that if transactions with the U.S. are suspended for SMIC following Huawei, it will inevitably deal a direct blow to China's semiconductor self-reliance plans. SMIC is expected to face setbacks in developing fine processes below 7 nanometers (nm, one billionth of a meter). Currently, SMIC has entered mass production of 14 nm products and is focusing on narrowing the technological gap with companies like Samsung Electronics and TSMC, which produce products below 7 nm with substantial support from the Chinese government.

According to market research firm TrendForce, as of the second quarter of this year, SMIC ranked fifth in the global foundry market with a market share of 4.8%, following TSMC (51.5%), Samsung Electronics (18.8%), GlobalFoundries (7.4%), and UMC (7.3%).

Korean Semiconductor Industry Expects Short-Term Benefits... Concerns Over Increasing Long-Term Uncertainty

The industry has also projected that the recent strengthening of U.S. semiconductor sanctions against China could bring short-term benefits to domestic companies. It is interpreted that Samsung Electronics and SK Hynix’s foundry subsidiary, SK Hynix System IC, could take on some of SMIC’s fabless (semiconductor design specialist) orders.

However, some analysts argue that direct benefits may be difficult to expect since the business areas of domestic companies and SMIC differ. SMIC’s main production products are positioned between Samsung Electronics, which focuses on processes below 7 nm, and SK Hynix System IC, which operates at relatively lower fine process levels.

The intensification of the U.S.-China trade dispute, which has increased uncertainty in the global semiconductor market, is also cited as a negative factor. The day before, Kioxia, formerly Toshiba’s semiconductor division, announced it would postpone its plan to list on the Tokyo Stock Exchange scheduled for the 6th of next month.

Kioxia is the second-largest NAND flash market player after Samsung Electronics, and in 2018, SK Hynix invested about 4 trillion won in Kioxia. Although Kioxia did not specify the exact reason for the delay, the industry views the impact of the U.S.-China trade dispute as the direct cause.

This content was produced with the assistance of AI translation services.