Korean chipmakers relieved by finalized U.S. CHIPS Act guardrails provisions.

[Image source: Gettyimagesbank]

South Korean chipmakers, including Samsung Electronics Co. and SK hynix Inc., will still be able to process “routine upgrades” of their production facilities in China under the finalized guardrails provision of the CHIPS And Science Act.

According to the Korean government and industry sources on Sunday, the U.S. Commerce Department finalized the guardrails provisions for recipients of benefits under the CHIPS act. Under the provisions, recipients of subsidies under the U.S. law face limits in expanding their chipmaking production in “countries of concern.” For example, Samsung Electronics and SK hynix can increase a production facility’s capacity by up to 5 percent over a decade from the point of subsidy receipt. Manufacturers of “legacy semiconductors,” meaning chips of the 28-nanometer generation or older, have a production capacity limitation of under 10 percent.

The production capacity limitations imposed by the U.S. are based on wafer production. The Korean government and businesses previously requested that the 5 percent limit on production capabilities be expanded to 10 percent, but the request was not accepted by the U.S. government. However, some argue that the 5-percent expansion limitation provision may not have a significant impact because substantial production increases can be achieved through technology development and increased integration density.

Nevertheless, the $100,000 ceiling for investments exceeding the 5-percent expansion limitation in the initial draft of the guardrails was removed, likely in response to requests from the Korean government and businesses. Instead, the Commerce Department has allowed the ceiling to be determined through agreements with companies.

The government and businesses expect that the exemptions from semiconductor equipment export controls will also be extended, given that the CHIPS act guardrails have incorporated some of the requests from the Korean government and businesses. With the final guardrails and extension of exemptions, chipmakers will see a considerable reduction in the uncertainty surrounding chip production in China.

The U.S. government announced export control measures on certain chips and devices to China in October last year. In accordance with the control, the sale of any devices or technologies that enable semiconductor production beyond its standards, such as DRAM memory devices with 18 nanometers or smaller, NAND flash memory devices with 128 layers or more, and fin field-effect transistor (FinFET) devices, requires permission.

The U.S. government has granted exemptions for Korean chipmakers such as Samsung Electronics, SK Hynix, and Taiwan Semiconductor Manufacturing Co. until October 2023 and has expressed its intention through various channels to extend these exemptions.

While there were concerns that the U.S. government could tighten regulations further after it was revealed that SK hynix had supplied memory chips for Huawei’s latest smartphone, there is also speculation that the extension of exemptions will not be reversed in the short term. “There is an observation that export control will take into account companies in its allies,” an industry insider said.

For its part, the Korean government will continue discussions with the United States regarding the CHIPS act guardrails.

“To safeguard the investment and operational activities of South Korean companies, we will continue to collaborate and engage in discussions with the U.S. government,” an official from the South Korean Ministry of Trade, Industry, and Energy said on Sunday, suggesting that Seoul and Washington will discuss some provisions not specified in the U.S. guardrail provisions of the law.

But Korean companies are still wondering if these detailed regulations will affect their production growth in China.

“The area expansion is not the crucial factor,” the ministry official said.

The CHIPS Act, signed into law to bolster domestic semiconductor production in the United States and reduce reliance on foreign manufacturers, has drawn international attention due to its potential impact on global semiconductor supply chains. Korea, as one of the leading players in the semiconductor industry with part of its memory chips being produced in China, is keen to address any concerns and uncertainties surrounding the act.