The US pressures Samsung and SK Hynix to close their factories in China

The US Department of Commerce has announced that it is cancelling licences that allowed Samsung and SK Hynix to use US equipment to produce chips in China. The restrictions will take effect in 120 days.

What it means.

The operation of fabs in China is not legally prohibited by US law, so companies can continue to produce chips there. However, it is actually prohibited to upgrade equipment at these fabs. This means that in the coming months, this production will become obsolete and will not be able to compete with products from other manufacturers.

Samsung Xi'an NAND Flash Factory is a plant that produces up to 40% of all Samsung memory chips. This is a huge production facility and Samsung needs to be able to move it somewhere else in 120 days. SK Hynix DRAM also has a huge production capacity. Most likely, the companies will continue to produce on these lines for more low-end devices, but it will be much less profitable. Increasing the capacity of other factories in 120 days looks doubtful for now.

The US claims that this is a national security measure to curb China's progress in the semiconductor industry and prevent military use of advanced technologies. Chinese companies regularly obtain the most advanced Western technologies through industrial espionage, and they manage to do so even outside China. However, it will be more difficult to do so outside the jurisdiction of Chinese law.

Global implications:

Micron (USA) could gain a huge competitive advantage as early as 2026. Also, Chinese hardware manufacturers get a chance to strengthen their positions, as we have already seen with the growth of AI servers powered by Huawei processors. Next year is likely to see a dramatic increase in NAND memory prices, as huge investments in new fabs will be required, and production outside of China will have a higher cost. Raising the price of the most advanced flash memory will also drive up the price of all other memory. More than 20,000 Samsung and SK Hynix employees in China are at risk of massive layoffs. South Korea is already negotiating to soften or delay the law.