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A logo of SK Hynix. Photo: AP

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.”


AI chip maker ordered by US government to halt exports to China

AI chip maker ordered by US government to halt exports to China

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.

Earlier this month, the US commerce department unveiled sweeping updates to its regulations, fortifying export controls on advanced semiconductors and certain chip-making tools for China-based entities.
Wafer fabs in China owned by foreign businesses, including SK Hynix’s 300-millimetre DRAM wafer fabrication plant, have been granted a one-year grace period, during which they can continue to import equipment from the US. Samsung Electronics and Taiwan Semiconductor Manufacturing Co have also received exemptions for their fabs in China.

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.

A SK Hynix factory in Cheongju, South Korea’s North Chungcheong province. Photo: Kyodo
SK Hynix was forced to halt a plan to upgrade its Wuxi facility last year because US officials did not want advanced equipment to enter China, Reuters reported at the time.

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.

Memory chips by SK Hynix seen on a circuit board. Photo: Reuters

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.

This week, SK Hynix reported sluggish third-quarter sales of 10.98 trillion won (US$7.7 billion), down 20.5 per cent from the previous quarter, owing to weak demand for DRAM and NAND products amid the worsening macroeconomic environment worldwide.

The company said it would cut investment in 2023 by more than half from last year.