USA vs. China – Storm in a Korean Teacup

Waiver cancellations won’t change very much.

• SK Hynix and Samsung have lost their waivers to export semiconductor equipment to China which sounds bad but in practice means that they will have to build their more advanced memory fabs in other countries.
• Both SK Hynix and Samsung have significant memory manufacturing capacity in China which predated the restrictions that were put in place by the US Department of Commerce in 2022.
• As a result, they were granted waivers to continue buying equipment in Korea and exporting it to China so that these facilities could continue operating.
• However, the waivers did not prevent Samsung and SK Hynix from expanding or upgrading this capacity which is what the loss of the waivers has been designed to prevent.
• In place of the waivers, Samsung and SK Hynix will be granted licenses to export certain types of equipment that will keep the fabs running, but they will not be able to upgrade the fabs to more advanced nodes or increase the total number of chips produced.
• This is what the original waivers were clearly intended to deliver, as opposed to a free license to continue growing and upgrading manufacturing in China.
• Hence, the real impact of this change is that Samsung and SK Hynix will have to consider other locations when it comes to increasing capacity or building more advanced fabs.
• I think it is very unlikely that existing manufacturing will be curtailed or prevented from operating, meaning that this whole episode is a storm in a teacup.
• Instead, I suspect the US will be very keen to encourage Samsung and SK Hynix to build more capacity in the USA, and so I would not be surprised to see more announcements along these lines in the coming quarters.
• The net result is that the loss of the waivers does not represent a change in policy but a move to ensure that to close loopholes that could have allowed South Korean memory makers to conduct advanced chip manufacturing in China.
• The policy remains unchanged, which, since October 2022, has been to prevent China from moving beyond the 20nm manufacturing node with foreign equipment and to maintain as much of a lead as possible.
• In response, the Chinese have developed and extended the multipatterning technique used by TSMC and Intel for 7nm, which uses older equipment but comes at the cost of lower yields and higher costs.
• I have long argued that while China will be able to manufacture these chips and build advanced AI, it will not be able to do so economically, which puts China at a disadvantage when it comes to selling its technology overseas.
• This is why I think that at the moment, the West has the advantage over China when it comes to the ideological struggle being fought in the technology sector.
• For Samsung and SK Hynix, I don’t think it means very much as existing operations will continue and extensions and upgrades will be built elsewhere.
• Hence, I see no change to the investment case for Samsung where I hold a position.
• I am expecting Samsung to qualify its HBM4 product with Nvidia in Q1 2026, and this to result in a recovery of the shares to at least KRW80,000 or even higher.
• I am happy to continue holding the London-listed GDRs.