Will Samsung, SK hynix pass on tariff burden to clients?

Semiconductor chips are seen on a circuit board of a computer in this illustration picture, Feb. 25, 2022. Reuters-Yonhap

As the Donald Trump administration’s “reciprocal” tariffs on major trading partners took effect Wednesday, the chip industry’s attention is now on whether Korean chip giants Samsung Electronics and SK hynix will pass on extra costs to their American clients, after U.S. memory chipmaker Micron did the same.

Reuters reported Wednesday that Micron told its U.S. customers that it plans to impose a surcharge on memory module and solid-state drives (SSD) products in response to the Trump administration’s new tariffs.

In its letter, Micron notified its customers that Trump's tariff announcement last week exempted semiconductors, but the tariffs applied to memory modules and SSDs.

Micron's overseas manufacturing facilities are primarily located in Asia, including China and Taiwan. While the exact rates appear to be subject to change, the U.S. plans to impose a combined tariff of up to 104 percent on Chinese imports, with a 32 percent duty applied to products from Taiwan.

The company logo is seen on the Micron Technology offices in Shanghai, China May 25, 2023. Reuters-Yonhap

Micron’s reported decision to pass on tariff-related costs is widely seen as a signal that a wave of price hikes may affect the global chip supply chain.

Both Samsung Electronics and SK hynix declined to comment on their price policies in the wake of the tariffs, saying they will review their price policies when the specific U.S. chip duty is announced.

However, industry officials assume that Micron’s decision, if confirmed, will likely affect the two Korean chipmakers as well, given their supply chain.

According to data from the Korea International Trade Association, chips accounted for only 7.5 percent of Korea’s direct exports to the U.S. last year, as they were mostly shipped to the U.S. after being assembled into finished sets — such as server racks, modules and even devices — in Taiwan, China and other nations.

SK hynix's high-bandwidth memory 3e chip / Courtesy of SK hynix

For example, high-bandwidth memory, which is gaining attention for its use in artificial intelligence accelerators, is initially produced in Korea and then shipped to TSMC in Taiwan to be assembled into graphics processing units. These are then sent to Foxconn in China or other server rack manufacturers before being exported to the U.S.

Since tariffs are applied to finished goods, such products are subject to Trump's "reciprocal" tariffs, not semiconductor-specific tariffs. That means, even if Samsung Electronics or SK hynix directly exports memory modules from Korea, a 25 percent tariff would still be imposed under the country’s reciprocal tariff rate.

"While the situation requires further monitoring, the tariffs are so high that it would be difficult for companies to fully absorb the costs on their own,” an industry official said. “It is difficult to say that Samsung Electronics or SK hynix will directly use Micron’s reported surcharge as a precedent, (as) it still seems uncertain how the two companies will react to the tariffs.”

Another industry official said that the likelihood is increasing that the tariffs will ultimately push prices up for customers in the U.S.

"For advanced chips, there are virtually no production alternatives within the U.S.,” the second official said. “If the current tariff structure remains in place, the added costs will likely be passed along the supply chain, eventually landing on the end customers in the United States.”

According to a poll by U.S. market researcher Gartner in March, 59 percent of 192 chief financial officers of global companies expect their organizations to absorb less than 10 percent of tariff impact in their cost base, with only 9 percent saying they plan to absorb over 90 percent of tariff impact.

Global DRAM prices are showing a stable increase as clients front-loaded their orders in response to the U.S. tariff measures. With chipmakers planning to negotiate with clients on tariff impacts separately from the current rally, some industry officials cast a rosy outlook that the current situation will expose the two chipmakers’ legacy memory business to a favorable environment.