Samsung cuts production, South Korean wants to increase exports to China

According to Korean media Aju News, Samsung plans to reduce the amount of wafers invested by at least 10% at the S3 plant in South Korea’s Hwaseong Park starting from the third quarter of 2023.

According to reports, Samsung Semiconductor will start reducing production at the S3 plant in Hwaseong Park in the third quarter. The S3 factory is a 12-inch production line built and put into operation by Samsung Semiconductor in 2018. It currently mainly produces 10nm to 7nm products. It is also one of the main production plants of Samsung Semiconductor's EUV advanced process. Samsung has deployed multiple ASML NXE3400 EUV lithography machines for it. .

Image credit: Samsung

Aju News pointed out that this production reduction is the first time in recent years that Samsung has artificially reduced the amount of wafers put into semiconductor factories.

Industry insiders pointed out that during the downturn in the semiconductor industry, in order to invest counter-cyclically to squeeze competitors such as TSMC, Samsung is still seeking to expand production until the beginning of this year, and plans to increase wafer production capacity by at least 10% by the second half of 2023, but The decline in the semiconductor industry has far exceeded Samsung's expectations.

The amount of Samsung Semiconductor’s products in stock is nearly 32 trillion won (currently about 170.56 billion yuan), a record high since records. Therefore, after reducing memory production and raising prices, Samsung had to further reduce the amount of system LSI wafers to balance inventory.

The China Cyberspace Administration announced on May 21 that operators of domestic critical information infrastructure are prohibited from purchasing Micron products because the products sold by Micron in China have not passed the network security review. Therefore, China's memory semiconductor market has vacated a considerable part of its share.

In this case, all parties are eyeing this part of the market share. It is said that the South Korean government has negotiated with the United States and asked the White House to allow Samsung and SK to increase their semiconductor production in China to 10%. Meanwhile, a U.S. lawmaker insisted that South Korean companies not fill the void left by Micron due to the sanctions, aiming to prevent Samsung Electronics and SK Hynix from profiting.

According to the U.S. Federal Register, the South Korean government submitted its official comments on March 21 on the details of the "guardrail clause" of the Semiconductor Act published by the U.S. Department of Commerce. It consulted closely with South Korean chipmakers before submitting its opinion, asking the U.S. government to increase to 10% the limit for subsidized South Korean companies to increase their semiconductor production capacity in China.

In this context, South Korea also asked the US government to clarify the scope of the "technical compensation clause". In simple terms, the "technical compensation clause" stipulates that if joint research activities are carried out with entities of concern such as China, and technology licenses are provided to them, subsidies must be returned.

The “guardrail rule” proposed by the U.S. Department of Commerce requires companies receiving government subsidies to be fully refunded if they participate in major transactions within the next 10 years that substantially expand the semiconductor production capacity of foreign entities of concern, such as China.

Specifically, the actual production capacity of advanced semiconductors is limited to 5%, and that of traditional semiconductors is 10%. At present, the semiconductor industry generally refers to 12-14nm process DRAM and 3D NAND flash memory with more than 170 layers as advanced chips, and factories of Samsung Electronics and SK Hynix are producing these two products.

In response, the South Korean government requested that the standard for actual expansion of advanced semiconductor production capacity be raised from 5% to 10%.

The South Korean government also asked the US government to clarify the scope of the "technical compensation clause". The "technical compensation clause" means that subsidies must be returned when conducting joint research with Chinese companies or providing technology licenses to Chinese companies. In addition, the South Korean government also asked the US government not to ask companies to provide sensitive technology and confidential information and data during the review process, and signed non-disclosure agreements with semiconductor companies.