The U.S. administration has revoked the validated end-user (VEU) waivers for Intel, Samsung, and SK hynix for the export of advanced wafer fabrication equipment and tools to China.

These VEU waivers were introduced in response to export controls imposed on advanced fab tools by the previous U.S. administration in October 2022.

In 2023, the VEU program was expanded to allow select semiconductor firms to export the U.S. technology license-free to China. It streamlined the process for American companies such as Applied Materials to ship their products to customers in China, as long as they are not supplied to China’s military or intelligence sectors.

The end of VEU status—materializing in 120 days—means that Intel, Samsung, and SK hynix will have to seek licenses to purchase American chip fabrication gear for their manufacturing facilities in China. It will lead to case-by-case reviews, which could take three to six months to obtain a license.

The common perception about this move is that the U.S. government is laying the groundwork in case its trade talks with China fall apart. In other words, it’s a precautionary tactic for a worst-case scenario in which the current truce between China and the United States unravels.

Nevertheless, the U.S. export waivers increase regulatory uncertainty for semiconductor outfits operating in China. They could also further push fabs in China toward process nodes that serve mature, legacy chips.

o whom it may concern

To begin, it’s essential to note that Intel and TSMC don’t have significant exposure to this revocation of VEU waivers. Intel, though listed in the notice, has minimal exposure to these U.S. restrictions because the Santa Clara, California-based chipmaker sold its NAND flash fab in Dalian to SK hynix in 2020.

Currently, Intel has assembly and test facilities in Chengdu, which don’t mandate the most advanced chip fabrication tools. The same is true for another large American semiconductor outfit, Micron, which has assembly and test operations in Xi’an.

TSMC, on the other hand, appears to be insulted by this development. Its 12-inch fab in Nanjing operates under a permanent VEU authorization; Fab 16 produces 12-nm, 16-nm, and 28-nm chips and is currently TSMC’s most profitable overseas fab. TSMC’s Fab 10 in Shanghai operates mature process nodes, such as 1.3 µm and 1.8 µm, and thus isn’t vulnerable to VEU license revocations.

So, the brunt of this regulatory move falls on South Korean memory giants Samsung and SK hynix. The memory chip duo from South Korea is expected to face the highest impact under this policy shift. Below is a sneak peek at the chip fabrication assets in China owned by Samsung and SK hynix, and how the lack of advanced fabrication tools could severely impact them.

Samsung and SK hynix in limbo

Samsung, the world’s largest memory chipmaker, produces nearly 40% of NAND memory chips in its Xi’an fab. Besides NAND production, what’s at stake is Samsung’s transition from 128-layer to 236-layer and 286-layer NAND technology. Samsung is currently in the midst of shifting its NAND flash from 128-layer to 236-layer devices, and restrictions at Xi’an fab could impact the transition, and subsequently its global supply of NAND memory chips.

There are media reports suggesting that Samsung has been considering reducing the Xian fab’s production volume by approximately 10%, which would involve cutting the monthly wafer input from 200,000 units to 170,000 units.

SK hynix, the world’s second-largest memory chipmaker, is even more exposed to VEU waiver terminations than its South Korean cousin. Its DRAM fab in Wuxi, built in 2006, is producing nearly 40% of its total DRAM output. SK hynix has some room to produce more DRAM chips at its M16 fab in Icheon, Korea. Amid this chaos, market tracker Omnia projects that Wuxi Fab’s share of SK hynix’s total DRAM output is likely to decline to 35%.

Next, SK hynix’s NAND flash fab, which it acquired from Intel, manufactures 25% of its NAND memory devices. In 2024, the Korean memory chipmaker spent nearly $83 million to buy chip fabrication equipment for its DRAM fab in Wuxi, NAND flash fab in Dalian, and packaging facility in Chongqing.

Apparently, a significant share of South Korean DRAM and NAND production comes from fabs in China, and if these fabs begin to trail behind their counterparts in South Korea, they could lose appeal to the industry at large. Moreover, it will be hard for Samsung and SK to maintain fab operations in China in the long run.

It also opens a new geopolitical front for the South Korean government, which is currently engaged in negotiations with the U.S. administration over a tariff pact.

The South Korean President Lee Jae Myung recently returned from the United States without finalizing a written agreement. Now, with this revocation of VEU waivers, South Korea has become another casualty of the trade war between the world’s two largest economies.

Will Samsung and SK hynix consider diversifying their memory chip production to other fabs in Korea or elsewhere? Or will they limit their fabs in China to mature, legacy chips?

Lee Jong-hwan, a semiconductor engineering professor at Sangmyung University, told The Korea Herald that shutting down the Chinese fabs is not a viable option for Samsung and SK hynix. “China is also an important market for them.”

What comes next?

It’s important to note that Samsung and SK hynix aren’t the only ones on the edge due to the U.S. export restrictions on critical chip fabrication technologies. American semiconductor equipment suppliers—Applied Materials, KLA, and Lam Research—will lose significant revenue opportunities in the mid to long run. Applied Materials, for instance, derived nearly 37% of its sales from China in 2024.

On the other hand, Micron, the American memory chip rival of Samsung and SK hynix, is likely to benefit from its South Korean competitors’ troubles in China.

It could also benefit China’s fab equipment manufacturers as well as local memory chip suppliers such as CXMT and YMTC. CXMT—which saw its DRAM production surge by 50%, thanks to government backing—is aggressively moving from legacy products like DDR4 and LPDDR4 toward more advanced DDR5 and LPDDR5 chips.

Coming back to Samsung and SK hynix, some industry watchers believe that the South Korean memory chip duo could cut a deal with the U.S. administration similar to AMD and Nvidia to secure export licenses. AMD and Nvidia have recently agreed to share 15% of China’s sales of MI308 and H20 processors, respectively, with the U.S. government.

Or this affair could become a bargaining chip in the current tariff negotiations between South Korea and the United States.

By: DocMemory
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