SEOUL, South Korea (AP) – South Korean computer chip maker SK Hynix said on Wednesday it may be forced to sell its manufacturing operations in China if the US hits hard on exports of semiconductor technology and manufacturing equipment to China.
SK Hynix’s chief marketing officer, Kevin Noh, raised those concerns in a conference call on Wednesday after the company reported that operating profits were down 60% in the last quarter of 2021, a decline attributed to a deteriorating business climate.
Global inflation, fueled by Russia’s war on Ukraine and rising interest rates imposed by central banks to curb rising prices, has slowed consumer spending on the kinds of high-tech products that require computer chips. SK Hynix and other semiconductor makers are also navigating new US restrictions on exports of advanced semiconductors and chip-making equipment to China. Such limits were imposed in part to prevent the use of US advanced technology in China’s military development.
SK Hynix said this month that the US Department of Commerce has granted the company a year-long exemption from such requirements, allowing it to supply equipment and other supplies to its Chinese factories that make memory chips.
Other major manufacturers of chip and chip production equipment, such as Samsung and Taiwan’s TSMC, are also said to have received exemptions.
SK Hynix may find it difficult to equip its production line in the eastern Chinese city of Wuxi with the most advanced chip machinery, including extreme ultraviolet lithography (EUV) systems, Noh said. He said SK Hynix doesn’t expect major disruptions at the plant, at least until the end of the 2020s, but things could deteriorate quickly if at some point Washington refuses to extend temporary exemptions and begins to fully enforce its export controls. .
“If it becomes a situation where we have to get a (US) license per tool, that will disrupt the supply of equipment … then the late 2020s,” Noh said.
“When faced with issues that make it difficult for us to operate our Chinese manufacturing facilities, including the Wuxi plant, we consider different scenarios, including selling those manufacturing facilities or their equipment or bringing them to South Korea,” said Noh.
He said those emergency plans would apply to a “very extreme situation,” and the company hopes to avoid such problems and operate normally.
Citing an “unprecedented deterioration” in market conditions, SK Hynix said it would cut its investments by more than 50% next year as it expects supply to continue to exceed demand for the time being. The country’s operating profit for the three months to September was 1.65 trillion won ($1.16 billion), compared to 4.17 trillion won ($2.92 billion) in the same period last year. Sales fell 7% to 10.98 trillion won ($7.7 billion).
Some experts say the technological standoff between the US and China could force SK Hynix and Samsung Electronics, another major South Korean chipmaker, to make significant changes to their Chinese operations in the coming years.
According to market analysis firm TrendForce, SK Hynix’s Wuxi plant accounts for approximately 13% of the world’s total DRAM production capacity. It is reported that about 40% of Samsung’s NAND flash chips are produced at its factory in the Chinese city of Xi’an, accounting for about 10% of global production.
“The existing (principles) that we have accepted as common sense, such as finding a particular region where we can produce most efficiently at the cheapest cost and shipping those products worldwide, are becoming increasingly uncertain as (our) decision-making is affected by different layers of factors beyond just business,” Noh said.
It is widely believed that Samsung, the world’s largest supplier of memory chips, has been granted a similar exemption from the US restrictions, although the company has not confirmed this publicly. Noh said during the conversation that SK Hynix’s “competitors” have also been given the US waivers, in a possible reference to Samsung and Taiwan’s TSMC.