South Korean chipmaker SK Hynix worries about China’s future

SEOUL, South Korea (AP) — South Korean computer chipmaker SK Hynix said Wednesday it could be forced to sell its manufacturing operations in China if a U.S. crackdown on semiconductor technology exports and of manufacturing equipment to China is intensifying.

SK Hynix chief marketing officer Kevin Noh raised those concerns in a conference call on Wednesday after the company announced that its operating profit fell 60% in the last quarter compared to 2021, a decline which she attributed to the deterioration of the business environment.

Global inflation amplified by Russia’s war on Ukraine and rising interest rates imposed by central banks to counter soaring prices have slowed consumer spending on the kinds of high-tech products that require computer chips. SK Hynix and other semiconductor makers also face new U.S. restrictions on exports of advanced semiconductors and chipmaking equipment to China. These limits were partly imposed to prevent the use of advanced American technology in China’s military development.

SK Hynix said this month that the US Commerce Department had granted the company a one-year exemption from those requirements, allowing it to provide equipment and other supplies to its Chinese factories making memory chips.

It is believed that other major chip and chip-making equipment makers like Samsung and Taiwan’s TSMC have also been granted exemptions.

SK Hynix may struggle to equip its manufacturing line in eastern China’s Wuxi city with the most advanced chip-making machinery, including extreme ultraviolet (EUV) lithography systems, a declared Noh. He said SK Hynix does not expect major disruptions at the plant until at least the late 2020s, but things could quickly get worse if Washington refuses to extend temporary exemptions at some point and starts to fully apply its export controls.

“If this becomes a situation where we have to license (US) tool by tool, it will disrupt equipment supply…and we may experience difficulties operating the (Chinese) manufacturing facilities at a much earlier stage. .that in the late 2020s,” Noh said.

“If we encounter issues that prevent us from operating our Chinese manufacturing facilities, including the Wuxi plant, we are considering various scenarios, including selling these manufacturing facilities or their equipment or transferring them to South Korea. “, Noh said.

He said these contingency plans would apply to a “very extreme situation” and the company hopes to avoid such issues and operate as normal.

Citing an “unprecedented deterioration” in market conditions, SK Hynix said it would cut investment next year by more than 50% as it expects supply to continue to outstrip demand for the time being. The country’s operating profit for the three months to September was 1.65 trillion won ($1.16 billion), down from 4.17 trillion won ($2.92 billion) during the same period last year. Revenue fell 7% to 10.98 trillion won ($7.7 billion).

Some experts say the technology standoff between the United States and China could force SK Hynix and Samsung Electronics, another major South Korean chipmaker, to drastically alter their Chinese operations over the next few years.

According to market analyst firm TrendForce, SK Hynix’s Wuxi plant accounts for about 13% of the world’s total DRAM production capacity. Around 40% of Samsung’s NAND flash chips are believed to be produced at its factory in the Chinese city of Xi’an, accounting for around 10% of global production.

“Existing (principles) that we’ve accepted as common sense, like finding a certain region where we could produce most efficiently at the lowest cost and ship those products around the world, are becoming increasingly uncertain as (our) grip decision-making is influenced by different layers of factors beyond the business,” Noh said.

Samsung, the world’s largest memory chip supplier, is widely believed to have received a similar exemption from US restrictions, although the company has not publicly confirmed this. Noh on the call said SK Hynix’s “competitors” also got the US waivers, in a possible reference to Taiwan’s Samsung and TSMC.

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