Tech war: SK Hynix executive says Korean chip maker may sell China fab under ‘extreme’ US pressure
- SK Hynix’s chief marketing officer reportedly tells analysts the South Korean company is looking into various contingencies involving the latest US export controls
- The firm’s factory in the eastern Chinese city of Wuxi accounts for half of SK Hynix’s DRAM chip output and 15 per cent of the world’s production
A senior executive at SK Hynix, one of the world’s top memory chip makers, reportedly said the firm may sell its massive Chinese plant in the extreme scenario where Washington’s latest export controls made it too difficult to sustain production, suggesting a potential decoupling between China and South Korea in the semiconductor industry.
SK Hynix’s chief marketing officer Kevin Noh said on Wednesday in a conference call with analysts that the chip maker was putting in place various contingency plans for its Chinese plant in Wuxi, a city in eastern Jiangsu province, according to a Bloomberg News report.
“If the time comes when it appears difficult to maintain operation of the fab in Wuxi, then we might have to sell off the fab or move the equipment to Korea,” Noh was quoted saying. “We are looking into various scenarios, but again, this would amount to a contingency. So this would be an extreme situation.”
It was the first time that the company had put forward the possibility of ending manufacturing in China.
In a statement to the South China Morning Post later on Wednesday, SK Hynix seemed to walk back Noh’s comments, saying the company had never mentioned any plans to quit operations or shut down its facilities in China.
“SK Hynix will do its best to ensure stable operation of its facilities in China,” the company said.
Still, the US restrictions have cast a shadow over the long-term prospects of these firms’ Chinese operations because they would eventually lose access to upgraded versions of key technologies and equipment, which would hurt their competitiveness.
Analysts said South Korean chip giants like SK Hynix and Samsung had to reconsider the costs and benefits of operating in China under the new US regulations.
These companies have “no choice but to assess the risks of their plants in China”, said Gary Ng, senior economist for Asia-Pacific at investment bank Natixis.
“It is possible to see more firms selling or relocating their assets out of China to mitigate such risks,” Ng said. “Given the US goal is to freeze China’s advancement, there may be some flexibility in keeping the existing fabs eventually, but further expansion will be increasingly tricky.”
The one-year grace period gives Samsung and SK Hynix some “breathing space” only in the short term, wrote Mark Li, a senior analyst at asset management company Bernstein, in a recent note.
“In the long run we do believe it is the United States’ goal to induce, if not compel, Samsung and SK Hynix to reduce, if not decouple, their manufacturing operations from China,” Li said.
A closure of SK Hynix’s Chinese plant would deal a heavy blow to China’s position in the global semiconductor supply chain, as well as Beijing’s hope of wooing South Korean businesses to mitigate the harm caused by US sanctions.
The Wuxi factory is currently the largest foreign investment project in Jiangsu. It is critical to the global electronics industry, as it is responsible for about half of SK Hynix’s DRAM chip output and roughly 15 per cent of the world’s production.
The Wuxi government built an entire industrial estate with SK Hynix, which amounted to over US$20 billion in investments over 15 years. The company is so important to the local economy that a hospital and primary school were named after SK Hynix, according to the government.
The company said it would cut investment in 2023 by more than half from last year.