New US export regulations aimed at China’s chip industry prompt questions of impact on Korea

Posted on : 2022-08-17 17:37 KST Modified on : 2022-08-17 17:37 KST
New regulations ban exports of electronic design automation software, dealing a blow to Chinese chipmakers
US President Joe Biden signs the CHIPS and Science Act on the White House lawn on Aug. 8. (EPA/Yonhap News)
US President Joe Biden signs the CHIPS and Science Act on the White House lawn on Aug. 8. (EPA/Yonhap News)

The US is working on more regulations to prevent software used to design semiconductors from being exported to China. The US has already banned exports to China of equipment for making chips measuring 14 nanometers or below (1 nm = 1 billionth of a meter). While the new rules won’t have a big impact on South Korean companies in the short term, some experts say Samsung Electronics’ foundry business may end up taking a hit.

Bloomberg and other foreign media reported recently that the US Commerce Department has announced new export controls on four technologies needed to produce cutting-edge semiconductors and gas turbine engines so as to prevent “nefarious” military and commercial applications. While the Commerce Department didn’t mention China directly, its emphasis on “nefarious” use suggests that China is the implied target of the additional controls.

In regard to semiconductors, the new controls ban the export of electronic design automation (EDA) software, which is used to make chips with a diameter of 3 nm and above, and gallium oxide and diamonds, both key materials in advanced semiconductors.

According to TrendForce, a market research firm, controls on EDA software exports could have a major impact on the Chinese semiconductor industry. The controls could make it impossible for Chinese firms to acquire or use software that’s critical for semiconductor design, testing and assessment at a time of surging demand for cutting-edge chips in the areas of AI, machine learning and autonomous driving.

As of 2021, the EDA software market was dominated by US-based companies, with Synopsys, Cadence Design Systems and Siemens Digital Industries Software (formerly Mentor Graphics) holding market shares of 32%, 30% and 13%, respectively.

“Empyrean Technology is the leader of China’s EDA industry, but its technology [. . .] still [falls] far behind the American EDA industry,” TrendForce said.

“Even if China purchased a large amount of authorized EDA software before the current sanction takes effect, the software must connect to the developer for license updates before it can be used.”

The additional export controls by the US are expected to have a limited impact on the Korean semiconductor market, at least for now.

“There won’t be a big impact because most of the design is done in Korea,” an industry source told the Hankyoreh over the phone.

However, the controls could prevent Samsung Electronics from using a 3-nm process to make system semiconductors, known also as logic chips, commissioned by Chinese companies.

In response, Korean companies are moving quickly to set up branches in Washington and consult with the US government and Congress to learn the key content of the CHIPS and Science Act, which was recently signed into law by US President Joe Biden.

At the beginning of this year, Samsung Electronics hired Mark Lippert, former US ambassador to Korea, to help with those efforts.

Korean companies are also counting on a campaign by Intel to relax conditions set in the law for receiving tax breaks — including a guardrail that bans investment in cutting-edge semiconductor processes in China.

While “cutting-edge semiconductor processes” hasn’t been defined yet, it’s widely thought the category will include 14-nm or 28-nm chips. Depending on the eventual definition, Samsung Electronics and SK Hynix may be forced to choose between tax breaks in the US and investment in manufacturing facilities in China.

“We’re having lobbyists represent our positions while also keeping a close eye on the impact of US legislation and export controls,” said another source in the industry.

Some in the industry are frustrated with an apparent lack of strategy from the Korean government.

“There are things that companies can do, and things that only the government can do. Companies are grappling with the question of whether to invest as the supply chain is being rapidly reshaped by the US-China conflict,” an industry source said.

“The government needs to be talking about a higher-level strategy or a vision for the supply chain, but we’re not seeing that yet.”

By Lee Jeong-hun, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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