Samsung and SK Hynix shares plummet after US tightens chip export rules

Samsung Electronics and SK Hynix shares plummeted as the US tightens chip export rules, making it harder for the companies to ship equipment to their Chinese operations. The ruling also impacts sales of semiconductor equipment to China, with Samsung producing 40% of its NAND flash memory chips in Xi'an, China, and SK Hynix producing 20% of its NAND flash chips in Dalian, China. The companies will need to obtain licenses to export technology to China, but won't be granted licenses to expand capacity or upgrade technology.

Samsung Electronics and SK Hynix shares plummeted on Monday as the United States revoked exemptions that allowed the South Korean companies to access American semiconductor manufacturing equipment for their operations in China. The ruling, announced by the US Commerce Department, will require the companies to obtain export licenses for their technology, but will not grant licenses for expanding capacity or upgrading technology in China.

The move comes as the US tightens its stance on semiconductor technology transfer to China. The Commerce Department had previously granted exemptions to Samsung and SK Hynix, along with Intel, to operate their facilities in China. However, the revocation of these exemptions will now force the companies to seek licenses for any shipments of US semiconductor manufacturing equipment to China.

The ruling will have significant implications for both companies. Samsung, which produces nearly 40% of its NAND flash memory chips at its Xi'an, China plant, will be affected by the new restrictions. Similarly, SK Hynix, which produces 20% of its NAND flash chips in Dalian, China, will also face challenges in maintaining its operations in the country.

The US Commerce Department has stated that it will still consider license applications to avoid immediate operational shocks but has made clear that future upgrades and capacity expansions using US technology in China will be far more difficult. The ruling comes amid a fragile trade truce between Washington and Beijing and recent diplomacy with Seoul.

The South Korean government has warned of potential disruptions to the global chip supply chain and has promised to continue discussions with the US to minimize the impact on its semiconductor companies. SK Hynix has also stated that it will work closely with both Korean and US authorities to limit the business impact.

The ruling is expected to curb equipment sales to China by US suppliers, including KLA, Lam Research, and Applied Materials. Shares of these companies fell in early trade after the announcement. The decision may also help domestic Chinese equipment makers and US competitors like Micron in the memory chip sector.

The fate of pending license applications, follow-up negotiations between South Korea and the US, any Chinese countermeasures, and whether equipment vendors can reroute sales or customers to non-US suppliers while preserving global supply-chain stability remain to be seen.

References:
[1] https://stratnewsglobal.com/world-news/us-revokes-chip-equipment-access-for-samsung-sk-hynix/
[2] https://www.outlookbusiness.com/technology/us-revokes-export-exemptions-for-samsung-sk-hynix-tightening-chip-equipment-access-in-china
[3] https://www.cryptopolitan.com/samsung-sk-hynix-shares-fall/