As the world's semiconductor industry prepares for rising Sino-U.S. trade tensions, China's announcement on Sunday banning the use of some Micron Technology chips from the United States is a harsh reminder of the risks it faces.
China's action against Micron, the largest manufacturer of memory chips in the United States, was largely perceived as payback for Washington's attempts to limit Beijing's access to important technologies. It happened the day after the wealthy members of the Group of Seven (G7) agreed to "de-risk, not decouple," from China and as Washington urged its allies to follow suit in limiting semiconductor equipment exports to China.
Beijing has targeted Micron, a manufacturer of DRAM and NAND flash memory chips, as the first American chipmaker to do so after Washington introduced a number of export bans during the past year to prevent specific chips and chipmaking methods from being used to strengthen China's military capabilities.
While the move might benefit Micron's main competitors, Samsung Electronics and SK Hynix of South Korea, in the short term, analysts said the industry is under threat from rising geopolitical tensions as companies must navigate growing uncertainties that may affect supply chain management and investments.
According to Kim Sun-woo, analyst at Meritz Securities in Seoul, such tit-for-tat policies will make it harder for all chipmakers to make investment decisions.
"Companies have to address both production and sales. It would be better if production and sales happened in the same place, but this will keep dividing the two sides," he said.
Just a few days before the ban, Micron announced that it will be the first chipmaker to introduce cutting-edge chipmaking technology to Japan by committing up to 500 billion yen ($3.7 billion) to investments in extreme ultraviolet technology there. Tokyo is working to revitalise its chip industry, and the US is increasingly pressing its allies to cooperate in order to compete with China's chip and high-tech development.
Micron, which in the most recent fiscal year derived about 11% of its revenue from chip sales in mainland China, expressed its eagerness to continue discussions with Chinese authorities without making any mention of whether Beijing's decision might also have any bearing on the company's investment plans for Japan.
"It takes huge amounts of pre-emptive investment to be a chipmaker, and it takes five years, 10 years to break even on those investments, so putting predictability into jeopardy makes investments difficult," said Changhan Lee, vice chair of the Korea Semiconductor Industry Association.
"In the long term, this won't help anybody."
Although chip factories' costs vary according to capacity, chip type and country, the industry is one of the most capital-intensive manufacturing sectors, requiring construction of clean rooms and purchase of sophisticated chip manufacturing tools. Samsung, for example, spent a total of about 60 trillion won ($45.4 billion) to build two of its chip plants in Pyeongtaek, South Korea.
In China, Samsung and SK Hynix, the world's No.1 and No.2 memory chipmakers, have invested billions of dollars in their chip factories, which import some equipment such as etching machines from the United States.
Chip factories are one of the most capital-intensive manufacturing industries, necessitating the building of clean rooms and the procurement of specialised chip manufacturing equipment, even if costs vary depending on capacity, chip type, and nation. For instance, Samsung invested over 60 trillion won ($45.4 billion) in the construction of two of its chip factories in Pyeongtaek, South Korea.
The top two memory chip manufacturers in the world, Samsung and SK Hynix, have invested billions of dollars in their chip facilities in China. However, part of the machinery used in these factories, such etching machines, is imported from the United States.
Washington approved a one-year waiver for Samsung and SK Hynix so they can import tools without having to apply for a licence when it announced limitations on chipmaking exports to China in October, but it is unclear whether that waiver would be extended.
"It's better to set up the most efficient production base considering fixed costs and wages, but a big variable called regulation has been added. It's more complicated," Kim at Meritz said.
Analysts advised embracing the ongoing Sino-American trade war as the existing quo, warning that any additional geopolitical pressure could lead to the emergence of workarounds for importing memory chips.
According to a Financial Times report from last month, the White House requested South Korea to tell its chipmakers, the largest memory-chip manufacturers in the world, not to fill any market gaps in China if the sale of Micron goods was limited.
"(Korean chipmakers) are stuck in the middle and being bothered by all sides," said Kim at Meritz.
There were no comments on the issue from both Samsung and SK Hynix.
"The U.S.-China hegemony war is here to stay," said Lee Min-hee, an analyst at BNK Investment & Securities.
"Now it's chips, later it will be rare earths, raw materials... This is going to continue."
(Source:www.theprint.in)
China's action against Micron, the largest manufacturer of memory chips in the United States, was largely perceived as payback for Washington's attempts to limit Beijing's access to important technologies. It happened the day after the wealthy members of the Group of Seven (G7) agreed to "de-risk, not decouple," from China and as Washington urged its allies to follow suit in limiting semiconductor equipment exports to China.
Beijing has targeted Micron, a manufacturer of DRAM and NAND flash memory chips, as the first American chipmaker to do so after Washington introduced a number of export bans during the past year to prevent specific chips and chipmaking methods from being used to strengthen China's military capabilities.
While the move might benefit Micron's main competitors, Samsung Electronics and SK Hynix of South Korea, in the short term, analysts said the industry is under threat from rising geopolitical tensions as companies must navigate growing uncertainties that may affect supply chain management and investments.
According to Kim Sun-woo, analyst at Meritz Securities in Seoul, such tit-for-tat policies will make it harder for all chipmakers to make investment decisions.
"Companies have to address both production and sales. It would be better if production and sales happened in the same place, but this will keep dividing the two sides," he said.
Just a few days before the ban, Micron announced that it will be the first chipmaker to introduce cutting-edge chipmaking technology to Japan by committing up to 500 billion yen ($3.7 billion) to investments in extreme ultraviolet technology there. Tokyo is working to revitalise its chip industry, and the US is increasingly pressing its allies to cooperate in order to compete with China's chip and high-tech development.
Micron, which in the most recent fiscal year derived about 11% of its revenue from chip sales in mainland China, expressed its eagerness to continue discussions with Chinese authorities without making any mention of whether Beijing's decision might also have any bearing on the company's investment plans for Japan.
"It takes huge amounts of pre-emptive investment to be a chipmaker, and it takes five years, 10 years to break even on those investments, so putting predictability into jeopardy makes investments difficult," said Changhan Lee, vice chair of the Korea Semiconductor Industry Association.
"In the long term, this won't help anybody."
Although chip factories' costs vary according to capacity, chip type and country, the industry is one of the most capital-intensive manufacturing sectors, requiring construction of clean rooms and purchase of sophisticated chip manufacturing tools. Samsung, for example, spent a total of about 60 trillion won ($45.4 billion) to build two of its chip plants in Pyeongtaek, South Korea.
In China, Samsung and SK Hynix, the world's No.1 and No.2 memory chipmakers, have invested billions of dollars in their chip factories, which import some equipment such as etching machines from the United States.
Chip factories are one of the most capital-intensive manufacturing industries, necessitating the building of clean rooms and the procurement of specialised chip manufacturing equipment, even if costs vary depending on capacity, chip type, and nation. For instance, Samsung invested over 60 trillion won ($45.4 billion) in the construction of two of its chip factories in Pyeongtaek, South Korea.
The top two memory chip manufacturers in the world, Samsung and SK Hynix, have invested billions of dollars in their chip facilities in China. However, part of the machinery used in these factories, such etching machines, is imported from the United States.
Washington approved a one-year waiver for Samsung and SK Hynix so they can import tools without having to apply for a licence when it announced limitations on chipmaking exports to China in October, but it is unclear whether that waiver would be extended.
"It's better to set up the most efficient production base considering fixed costs and wages, but a big variable called regulation has been added. It's more complicated," Kim at Meritz said.
Analysts advised embracing the ongoing Sino-American trade war as the existing quo, warning that any additional geopolitical pressure could lead to the emergence of workarounds for importing memory chips.
According to a Financial Times report from last month, the White House requested South Korea to tell its chipmakers, the largest memory-chip manufacturers in the world, not to fill any market gaps in China if the sale of Micron goods was limited.
"(Korean chipmakers) are stuck in the middle and being bothered by all sides," said Kim at Meritz.
There were no comments on the issue from both Samsung and SK Hynix.
"The U.S.-China hegemony war is here to stay," said Lee Min-hee, an analyst at BNK Investment & Securities.
"Now it's chips, later it will be rare earths, raw materials... This is going to continue."
(Source:www.theprint.in)
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