Samsung, SK hope for eased US chip equipment regulation for China plants

Samsung Electronics semiconductor plant in Xi'an, China / Courtesy of Samsung Electronics

Samsung Electronics and SK hynix are closely monitoring U.S. regulatory developments on exporting chipmaking equipment to their plants in China, hoping the Donald Trump administration will set rules more favorable to them.

According to industry officials Sunday, the two Korean chipmakers are tracking the U.S. Commerce Department’s movement on the Validated End-User (VEU) designations, waivers that had granted the Korean firms indefinite clearance to ship key chipmaking equipment to their Chinese facilities.

On Aug. 29, the Bureau of Industry and Security (BIS) in the Department of Commerce announced that it has “closed a Biden-era loophole known as the VEU program,” and the companies will now have to obtain export licenses to send equipment.

According to BIS, it will revise the existing VEU authorizations list for China by removing Samsung China Semiconductor and SK hynix Semiconductor China. This rule is set to take effect Dec. 31.

Samsung and SK hynix obtained VEU status under the Joe Biden administration, which allowed them to send most semiconductor equipment, except for certain cutting-edge tools, to their plants in China.

Samsung operates a NAND flash memory plant in Xi’an and a packaging facility in Suzhou. SK hynix runs dynamic random access memory (DRAM) and NAND flash plants in Wuxi and Dalian, respectively, and a packaging plant in Chongqing. Market tracker TrendForce estimates around 35 percent of Samsung’s total NAND output is expected to come from China in 2025, as well as 40 percent of SK hynix’s DRAM output.

If the two companies lose their VEU status, U.S. equipment makers such as Lam Research and Applied Materials will need to file a license for every investment decision that Samsung and SK make regarding their Chinese plants.

SK hynix’s chip plant in Wuxi, China / Courtesy of SK hynix

Although the rules do not apply to existing equipment and the companies are not producing cutting-edge technology such as high-bandwidth memory at their Chinese plants, the impact is seen as inevitable.

BIS said in a statement that it “intends to grant export license applications to allow former VEU participants to operate their existing fabs in China,” but does not plan to grant licenses to “expand capacity or upgrade technology.”

Samsung Securities analyst Lee Jong-wook said that if the Korean chipmakers’ VEU status is permanently revoked, the execution of investments could be delayed by two to three months. He added that this would likely lead to higher product prices.

“BIS also appears to be recognizing the necessity of the VEU program,” he said. “However, the Trump administration may use this as a political weapon by stressing that it can scrap the program anytime. This increases uncertainties.”

Against this backdrop, Bloomberg reported on Sept. 7 that the Commerce Department proposed a “site license” idea, which would require equipment suppliers to seek approval annually for exact quantities of equipment.

“Although the Trump administration is seeking to tighten controls on U.S. chip technology flowing into China, it is also aware of the potential impact that scrapping the VEU program could have on the global semiconductor supply chain,” an industry official said.

“In this sense, the site license program appears to be a compromise, limiting the impact on supply chains while allowing for annual policy reviews. However, it still poses a hurdle, as it is difficult to predict issues such as equipment breakdowns and the need for repairs.”