U.S. Chips Act offers some comfort to Korean chip makers

Samsung Electronics and SK hynix will be able to maintain and upgrade their manufacturing facilities in China — albeit marginally — even after the implementation of Washington’s proposed rules.

Representatives of Samsung Electronics and Chinese government officials celebrate the opening of its second chip plant in Xi'an in March 2018. [SAMSUNG ELECTRONICS]

Samsung Electronics and SK hynix will be able to maintain and upgrade their manufacturing facilities in China — albeit marginally — even after the implementation of Washington’s proposed rules aimed at preventing U.S. subsidies from being used in China, Korea’s Trade Ministry said Wednesday.

The U.S. Commerce Department announced Tuesday that it will limit recipients of Chips and Science Act funding from investing in the expansion of semiconductor manufacturing in the "foreign countries of concern" including China and Russia.

But the limit was not an outright ban on investment in China since the department allows the recipient firms to expand production capacity by 5 percent for advanced chips and 10 percent for those made with relatively old manufacturing processes.

“It seems possible for Korean companies to maintain or partially expand and upgrade technologies" used in semiconductor manufacturing at their production facilities in China, said the Ministry of Trade, Industry and Energy after it reviewed details of the so-called guardrails of the Chips and Science Act that passed last year.

“When upgrading the technologies, chip makers can increase the number of chips per wafer by upping density, which translates into a capacity expansion,” the ministry said in a statement released Wednesday.

With Samsung Electronics' manufacturing complex in Xi’an, China is responsible for supplying about 40 percent of Samsung’s NAND flash memory products.

SK hynix plants in Wuxi, China, make 96-layer and 144-layer NAND flashes as well as about 40 percent of its DRAMs.

The two chip makers said they are thoroughly reviewing the details of the proposed rules.

"We have been in close discussions with the relevant government agencies of the U.S. and Korea, and plan to determine our next steps after reviewing the details of today's announcement," Samsung Electronics said in a statement.

A source in the semiconductor industry said that the decision helped the Korean chip makers avoid the worst-case scenario.

“There had been concern that the two companies could be forced to shut down their chip plants in China because initial media reports said that the U.S. will impose a 10 year-ban on chip factories’ expansion in China,” the source said.

Still, the companies face trouble keeping their facilities running and aligning them with the latest technologies as the U.S. has imposed a multitude of restrictions on top of the Chips and Science Act.

Last October, the Commerce Department mandated companies to acquire approval from the U.S. government to supply their factories in China with technologies for the making of DRAM memory chips rated 18 nanometers or less and NAND flash memory chips with 128 layers or more.

Samsung Electronics and SK hynix received one-year waivers for the October rule.

Meanwhile, a Korean legislative committee agreed to table a bill aimed at increasing tax incentives for semiconductor manufacturing facilities in Korea. Lawmakers will cast votes in a plenary session set for March 30.

The amendment would give big corporations a tax credit of up to 15 percent for investments in semiconductor manufacturing, up from the previous 8 percent.

For small and mid-sized enterprises, the percentage will be revised up to 25 percent from the current 16 percent.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]