The United States is expanding its regulatory front to include Chinese-made general-purpose semiconductors, a development that is expected to benefit domestic memory semiconductor companies like Samsung Electronics and SK hynix. It is anticipated that the focus on NAND flash, where the technological gap with China is not significant, will accelerate the depletion of domestic companies’ inventory and the rebound in prices, potentially leading to an earlier return to profitability.
According to industry sources on Dec. 26, the Bureau of Industry and Security (BIS) under the U.S. Department of Commerce plans to survey over 100 companies in sectors such as automotive, aerospace, and defense starting January next year to assess the dependence of U.S. companies on Chinese-made general-purpose semiconductors. Following the survey, the Department of Commerce is expected to initiate the process of imposing tariffs on these Chinese semiconductors. Additionally, measures to ban U.S. defense companies from importing Chinese semiconductors are also being considered.
The U.S. Commerce Department’s heightened regulation of the Chinese semiconductor industry has cast a shadow over China’s export front. U.S. companies are likely to reduce their reliance on Chinese semiconductors to avoid the uncertainty of additional regulations. The regulations are seen as directly targeting companies like Yangtze Memory Technologies (YMTC, for NAND), Changxin Memory Technologies (CXMT, for DRAM), and Semiconductor Manufacturing International Corporation (SMIC, as a foundry). In fact, a report from the White House in June 2022 mentioned that American companies like Western Digital and Micron are under direct threat due to YMTC’s aggressive pricing. Backed by substantial subsidies from the Chinese government, Chinese firms are rapidly expanding their influence in the mid-to-low-end semiconductor market through competitive pricing.
In contrast, Samsung Electronics and SK hynix are expected to benefit. It is anticipated that U.S. procurement of general-purpose semiconductors will shift towards South Korean products as an alternative to Chinese ones. The industry believes that Samsung Electronics and SK hynix, which operate semiconductor factories in China, are likely to be designated as exceptions to export controls. The U.S. government is also expected to consider the global semiconductor supply chain in its decision-making. This is similar to the U.S. government’s October decision to allow Samsung Electronics and SK hynix’s Chinese factories to import U.S. semiconductor equipment without separate licensing or time limits, based on “Verified End User” (VEU) regulations.
This development is projected to be a boon for domestic NAND businesses, which have been affected by the continuing downturn in information technology demand, in contrast to the DRAM segment that has benefited from the Artificial Intelligence boom. The NAND market, including solid state drives and other data storage devices, is fiercely competitive with little technological disparity between companies, leading to an abundant supply. As YMTC’s strategy to increase market share by lowering NAND prices faces hurdles, Samsung Electronics and SK hynix are predicted to increase their supply and deplete their inventory more rapidly.
Kim Dong-won, an analyst at KB Securities, said, “Samsung Electronics and SK hynix’s NAND business is expected to turn profitable from the second half of next year due to the effects of supply reduction and price increases. Along with the already profitable DRAM, Samsung Electronics and SK hynix are expected to see a steep improvement in performance from the second half of next year.”