The U.S. Department of Commerce recently recognized SK Hynix as a ‘Validated End User (VEU)’. However, an expert from a related agency within the Ministry of Trade, Industry and Energy has warned that SK Hynix may lose business in China if the U.S. continues its export restrictions on extreme ultraviolet (EUV) photolithography equipment.
“Blocked EUV photolithography equipment imports into China may lead to lower profitability as production processes and factory utilization rates may suffer,” said Ko Jong-wan, head of the Strategic Research Center of the Korea Semiconductor Industry Association, at a seminar on trade issues held at the Trade Tower in Samseong-dong, Seoul on Tuesday. The seminar, organized by the Ministry of Trade, Industry and Energy, was attended by key industry associations, organizations, and experts.
“The U.S. designation of Samsung Electronics and SK Hynix as VEUs has eliminated certain risks,” said Ko, “But the U.S. has a hardline stance on EUV photolithography equipment needed for mass production of advanced semiconductors.”
“This is something that the government needs to continue to discuss,” he added.
A VEU is a blanket license that enables pre-approved companies to import and export controlled items. The U.S. Department of Commerce collaborates with the company to designate the items authorized for export without a separate licensing process or an expiration date. It is now permanent, replacing the previous one-year authorization.
“Still, the VEU designation removes a significant risk for Korean companies,” said Ko, adding, “This was probably not an easy decision for the U.S. Department of Commerce to make, given that there are hardliners pushing for stricter export controls on China.”
Ko also noted the U.S. Department of Commerce’s concerns about brain drain.
“In addition to controlling the export of semiconductor equipment, the Department has taken steps to withdraw engineers,” he said. “U.S. nationals working in China have been required to surrender their passports, leading to many engineers leaving the country.”
“The engineer exodus has forced Chinese semiconductor companies to suspend planned R&D, and major semiconductor companies are already experiencing disruptions in their activities, including postponing investments and reducing headcount.”
Although the U.S. measures against China may not directly affect the domestic semiconductor industry, Ko said semiconductor material, component, and equipment companies may still face some damage.
“The rule is that U.S. export controls must be followed by foreign companies using U.S. technology,” he said. “China is pushing for localization of semiconductor materials, components, and equipment to overcome these restrictions.”
“This means that the market for domestic companies could shrink.”
This article was originally published on Oct. 25, 2023.