South Korean memory chip maker SK Hynix reported less promising than expected quarterly results on Oct. 25, with net profits dropping 67% year-on-year in the third quarter of 2022. Comments from a senior executive during a subsequent earnings call demonstrated concern for the firm’s business in China.
Why it matters: US authorities issued new export controls on Oct. 7, aiming to limit China’s semiconductor industry, measures that have had a ripple effect on international firms like SK Hynix operating plants in mainland China.
- SK Hynix’s factory in Wuxi comprises 13% of the global DRAM production capacity, according to an October report from Taiwanese consultancy TrendForce.
Details: On a Tuesday earnings call, Kevin Noh, chief marketing officer at SK Hynix, expressed concern over the firm’s plants in China and said the company could “face difficulties” in operating fabrication plants in the country when the one-year exemption from US restrictions authorized by the American Department of Commerce comes to an end.
- Noh indicated that SK Hynix could have difficulty equipping cutting-edge extreme ultraviolet lithography (EUV) for its fab in Wuxi.
- One extreme outcome, Noh suggested, would be the possibility that the firm has to sell its China-based equipment or ship it back to South Korea.
- However, he also said that the firm doesn’t expect major disruption at the plant until the late 2020s unless the US refuses to extend its exemptions for shipping chipmaking equipment to Chinese plants.
- SK Hynix claimed that its plants in mainland China are in operation “without issue” and it hopes their operation will continue, according to a statement the firm sent to Chinese media outlet Caixin on Wednesday.
- The statement also said that “comments on the possible transfer of the Chinese facilities are based on extreme cases with low possibilities” and that it hasn’t “reviewed such options in detail and seriously.”
Context: China is an important market for SK Hynix. It had invested more than $20.3 billion in Wuxi by the end of 2020, and the firm has four factories and seven offices in China, according to Caixin.
- In addition to SK Hynix, international primary memory chip makers such as Samsung and Intel also have fabrication plants in China. Samsung, for example, has two plants for NADA storage chips operating in Xi’an, contributing 42.5% of the firm’s production capacity and 15.3% of the world’s total, according to a report released in late 2021 by TrendForce.
- The US’ new chip export controls on China target a broad range of operations. For example, equipment for making 128 layers of NADA chips, 18nm DRAM chips, and 14nm logic chips or more advanced chips can not be shipped to plants in mainland China under the new restrictions without a license from the American Department of Commerce.