How new U.S. sanctions on China threaten Korea's chipmakers

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How new U.S. sanctions on China threaten Korea's chipmakers

Published: 03 Dec. 2024, 16:54 Updated: 03 Dec. 2024, 16:58

JIN EUN-SOO
[email protected]

Audio report: written by reporters, read by AI

Flags of China and U.S. are displayed on a printed circuit board with semiconductor chips, in this illustration picture taken February 17, 2023. [REUTERS/YONHAP]

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The United States' newest export restrictions on high bandwidth memory (HBM) to China threaten to choke Korean chipmakers, jeopardizing one of their most lucrative dynamic random access memory (DRAM) sales to the world's largest semiconductor market.

The U.S. Department of Commerce, on Monday, announced its latest export sanctions on China's chip industry, imposing bans on 24 types of chip manufacturing equipment, three categories of software tools for chip development and HBM chips.

HBM is a type of premium DRAM essential for processing the vast amounts of data required to train AI models. Currently, SK hynix leads the market, with a market share of more than 50 percent, followed by Samsung Electronics and Micron.

U.S. authorities decided to impose new controls on HBM products because they “enable advanced military and intelligence applications, lower the barriers to entry for nonexperts to develop WMD [weapons of mass destruction], support powerful offensive cyber operations and assist in using mass surveillance to commit human rights abuses,” the Bureau of Industry and Security under the U.S. Commerce Department said Monday.

Under the updated foreign direct product rule, HBM manufactured outside the United States but utilizing U.S. technology, software, or components will require U.S. approval for export to China, effective December 31. The restrictions will apply to second-generation HBM products and above.

Samsung Electronics is expected to be hit harder than SK hynix, as approximately 20 percent of its HBM sales are generated from China, according to industry sources.

While a vast majority of SK hynix's HBM chips are supplied to Nvidia's GPUs, which are used in Big Tech companies' data centers in the United States, Samsung, still undergoing qualification for Nvidia's latest GPU products, relies more heavily on the Chinese market for its HBM sales.

Samsung recently qualified its fourth-generation HBM — HBM3 — for supply to Nvidia's H20 GPU, a customized product for China with downgraded specifications.

“The fact that the U.S. has imposed sanctions on Korean companies, using 'original technology' as a weapon, is definitely not a good sign for us,” said Kim Yang-paeng, a senior researcher at the Korea Institute for Industrial Economics & Trade.

“Given that HBM is currently the most expensive type of memory chip with high growth potential, being unable to sell to China, the biggest semiconductor market, will hurt Korean chipmakers in the long term.”

Sales in China, for both Samsung Electronics and SK hynix, have been growing recently.

Samsung Electronics generated 11.2 trillion won in revenue from China in the third quarter of this year, a 53 percent year-over-year increase. SK hynix also reported 4.2 trillion won in sales in China, a 56 percent increase during the same period.

Korea's Industry Ministry said the impact on Samsung Electronics and SK hynix “could be minimized” by changing the way HBM is exported in a release on Monday.

“The new sanctions regulate the export of HBM as a stand-alone product, but if they are exported to China as part of a packaged product within GPUs or other AI accelerators, they may bypass the restrictions,” said an official from the Industry Ministry's trade controls policy division.

“Previously, Korean chipmakers sent HBM products to end users like Baidu, who handled the packaging themselves. In the future, Korean chipmakers may choose to perform the packaging in their own fabs or send it to fabs in Taiwan and other locations.”

The latest sanctions are likely to accelerate China's push for technological independence in manufacturing HBM. Chinese memory chipmaker ChangXin Memory Technologies reportedly began the mass production of HBM2 in August, advancing its schedule by at least one year.

“This will stimulate Chinese chipmakers to develop their own HBM, although whether they can achieve the required yield remains questionable,” researcher Kim said.

BY JIN EUN-SOO [[email protected]]