Taiwan TrendForce: "TSMC and Samsung in Sight of US Semiconductor Law's '28nm Clause'"

"Two Companies' China Production Focused on 28nm, but US Deals a 'Direct Blow'
Sensitive China in 'Chip4 Alliance'... Future Reactions Must Be Closely Watched"

U.S. President Joe Biden attending a meeting on the Semiconductor Act held via video conference at the White House South Court Auditorium on the 25th of last month (local time). (Photo by AP Yonhap News)

[Asia Economy Reporter Moon Chaeseok] An analysis from a Taiwanese institution has emerged, stating that the China production restriction clause included in the U.S. Congress-passed "CHIPS and Science Act" should be closely monitored as it could impact Samsung Electronics and Taiwan's TSMC. The Taiwanese institution showed a sensitive reaction to the fact that the law includes a provision banning the production of system semiconductor process products of 28 nanometers (nm, one billionth of a meter) or less in China. Since this appears to be a direct blow to China's main process product production, concerns have arisen that not only the two companies that built production facilities in China but also SK Hynix could be affected.

On the 1st, Taiwanese market research firm TrendForce released a press statement saying that the "28nm clause" in China included in the law will affect TSMC and Samsung Electronics. TrendForce stated, "With the law's enforcement, companies receiving U.S. subsidies are prohibited from investing in process technology of 28nm or below in China during the subsidy period, and currently, the only semiconductor companies increasing investments simultaneously in production plants (fabs) in both the U.S. and China are TSMC and Samsung Electronics," adding, "It is necessary to continuously monitor how the law will restrict the two companies' investments in China."

28nm semiconductors are mainly low- to mid-priced older components produced by China. This generally refers to microcontroller units (MCUs) controlling automobiles and electronic components, power supply semiconductors used in automobiles, smartphones, and other electronic devices. According to consulting firm IBS, China is expected to produce 40% of the world's 28nm semiconductors by 2025. The law thus pours cold water on China's main product production. This is because the U.S. created an "Entity List" of companies to which it prohibits selling its technology for advanced processes of 1Xnm (first-generation 10nm-class products) or below, causing the relevant Chinese companies to shift toward producing processes above 28nm, and the regulatory clause was created amid this situation.

According to TrendForce, the U.S. is also pressuring the Netherlands to prohibit exports of advanced process extreme ultraviolet (EUV) lithography equipment as well as older deep ultraviolet (DUV) lithography equipment to China, which is another burden for China. Although Chinese semiconductor company SMIC succeeded in mass-producing 7nm process products, if there are disruptions in securing key equipment, it inevitably leads to reduced product yield (the ratio of good products among finished products), performance degradation, and increased production costs. TrendForce forecasts that by 2025, the market share for 7nm or below process capacity will be approximately 69% for Taiwan, 18% for South Korea, 12% for the U.S., and 1% for China. For China, the passage of the law makes even securing this "1%" difficult.

Concerns are growing as the regulation comes at a time when China is showing a sensitive reaction to the U.S. demanding South Korea, Taiwan, and Japan join the "Chip 4 Alliance." If U.S. pressure intensifies, China may retaliate economically against companies like Samsung Electronics, SK Hynix, and TSMC. The possibility of weakening production capacity within China cannot be ruled out. This would not only reduce profitability but also cannot ignore that China accounts for about 60% of South Korea's semiconductor exports.

Specifically, Samsung Electronics could be affected in its NAND flash production facility in Xi'an, China, and its Suzhou test and packaging plant, while SK Hynix could be impacted in its Wuxi DRAM memory semiconductor manufacturing facility and Dalian NAND flash manufacturing facility (acquired from Intel). According to TrendForce, Samsung Electronics and TSMC focus their production activities in China on processes above 28nm. TrendForce stated, "Core equipment for advanced semiconductor processes in China is controlled by U.S. allies," adding, "Narrowing down to the foundry sector, TSMC and Samsung Electronics are recently focusing on 5nm advanced processes by establishing factories in the U.S., and their expansion activities in China are mostly centered on processes above 28nm."

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