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SK Hynix CEO Lee Seok-hee said on Monday the company will respond "wisely" to U.S.-China trade tensions, which could cast a shadow on the chipmaker's plans to upgrade its Chinese factories, Yonhap News Agency reported.
"Fourth-generation DRAM chips have been produced in South Korea since July, but there is still a long way to go before we can apply the same technology in our Chinese factories," he told reporters on the sidelines of the annual Semiconductor Day event.
He pointed to state-of-the-art 10-nanometer chips produced using extreme ultraviolet (EUV) lithography equipment made by Dutch company ASML.
Adopted by SK hynix at its Wuxi plant in China.
The status of ASML’s EUV lithography technology could reportedly put their China plans in jeopardy as the US is concerned that introducing this high-tech tool to China could end up strengthening China’s strategic industries.
“We will respond to this sensibly while working with the relevant parties,” he said, adding that the report was “nothing new.”
Last week, a company spokesperson echoed that sentiment, saying that "every industry is affected to a greater or lesser extent by geopolitical issues, but the (chip) industry has received increased attention recently."
Asked whether he expected SK Hynix's acquisition of Intel Corp's NAND business to be approved by China, he said the company was "actively cooperating" with the Chinese government but did not elaborate further.
Last October, South Korea's second-largest memory chip maker signed a deal to acquire Intel's non-volatile business for $9 billion, including the U.S. company's solid-state drive business and a NAND flash memory chip factory in Dalian, China.
After the transaction was completed, SK Hynix has obtained approval from antitrust regulators in the United States and six other countries, but has not yet obtained approval from China.
South Korean semiconductor companies want to transform Chinese chip factories, but the United States opposes
According to a Reuters report last week, people familiar with the matter revealed that South Korean semiconductor company SK Hynix had planned to renovate one of its large factories in China, but encountered challenges because US officials did not want more advanced semiconductor equipment to enter China.
SK Hynix, the world's second-largest maker of dynamic random access memory (DRAM) memory chips used in everything from smartphones to data centers, had hoped to improve its memory chip production efficiency through the transformation plan at its Chinese factories.
Reuters reported that three people familiar with the matter said that SK Hynix's production plan requires the company to upgrade a chip mass production facility at its Wuxi factory in China with the latest extreme ultraviolet (EUV) lithography machine from ASML of the Netherlands.
ASML's lithography machines are indispensable equipment for the manufacture of the most advanced semiconductors. The Chinese government has negotiated with the Netherlands and asked them to sell them to China. In response, the United States began to put pressure on the Netherlands during the Trump administration, as the United States believed that these advanced equipment could be used to strengthen China after being shipped to China.
The Wall Street Journal reported in July that in 2019, then-Deputy National Security Advisor Charles Kupperman invited the Dutch ambassador to the United States to the White House and told him: ASML's machines cannot function without American components, and that the White House has the right to restrict the export of these components to the Netherlands.
The Biden administration has continued this policy.
Reuters reported that a senior White House official declined to comment on whether U.S. officials would allow SK Hynix to bring EUV lithography machines into China.
SK Hynix worries about falling behind rivals
SK Hynix's Wuxi plant is crucial to the global electronics industry as it produces about half of the company's memory chips, accounting for 15% of the global total, and any major changes could have an impact on the global memory market. Analysis firm IDC said that demand in the global memory market will grow by 19% in 2021 alone.
Reuters quoted a source familiar with SK Hynix's operations in China as saying that as new chips account for a larger share of SK Hynix's production in two to three years, the company will inevitably need to use EUV lithography machines to control its costs and further accelerate production.
SK Hynix is concerned that if the situation is not resolved in the next few years, it could be at a disadvantage against other major competitors such as Samsung and Micron Technology, which are also turning to ASML's EUV lithography machines.
According to two people familiar with the matter, the issue of EUV lithography machines has attracted enough attention within SK Hynix that SK Hynix Chairman Lee Seok-hee also raised the issue with U.S. officials during his visit to Washington, D.C. in July. However, SK Hynix declined to comment on the introduction of lithography machines into the Wuxi plant. The company told Reuters that SK Hynix operates flexibly according to various market environments and is doing its best to respond to market and customer needs.
An ASML spokesman said the company complies with all export control laws and views them as an "effective tool" for the government to ensure national security. But the company also said that excessive use of these controls "could affect the production capacity needed to stay ahead of the growth in semiconductor demand."
In this regard, Dan Hutcheson, CEO of semiconductor industry research firm VLSI Research, said: "They (SK Hynix) are really caught between China and the United States." He added that rules restricting the import of ASML's EUV lithography machines into China may apply to any chip manufacturing plant located in China, whether it is foreign-funded or Chinese-funded.
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