US to require Korean chipmakers to cough up trade secrets in exchange for incentives

Posted on : 2023-03-29 17:21 KST Modified on : 2023-03-29 17:21 KST
South Korean semiconductor companies have declined to share an official position on the US demands — but insiders described them as “excessive”
(Yonhap)
(Yonhap)

Based on the CHIPS and Science Act, the US Department of Commerce is insisting that companies building semiconductor production facilities in the US have to submit sensitive core business secrets such as semiconductor yields (the percentage of items without defects) when applying for incentives.

The request goes above and beyond ordinary business information such as general plans for procuring investment funds. It appears intended as a basis for detailed assessments of business information from investing companies, such as Samsung Electronics, with funds to be recovered if “surplus profits” are discovered.

On Monday, the department issued detailed guidelines on the information that companies have to submit when requesting subsidies while building semiconductor facilities in the US.

To begin with, companies applying for incentives must provide information about investments, including the site, scale, and means of procuring funds.

The department also requested the submission of detailed forecasts for the facilities’ operation in a category labeled “financial model.” Companies are to provide information about quarterly operation rates for facilities, wafer production volumes, yields, and anticipated prices and sales by product type.

To estimate production costs, the guidelines demand details on quarterly outlays toward different categories of personnel (including managers and technical staff) as well as accounting, marketing, distribution, legal affairs, and research. The company would have to report additional details on operational costs including materials used in production (such as nitrogen, oxygen, hydrogen, and sulfuric acid) and electricity, water, and natural gas usage.

The Commerce Department previously stated plans to examine the cash flows and balance sheets of prospective subsidy recipients. But the demands call for even more detailed information than is typically listed on a balance sheet — up to and including internal company information about all aspects of production facility operation.

The department explained that the information would be used not only to assess and establish the scale, format, and conditions of subsidies but also to evaluate the likelihood of investment success, the financial structure, and economic gains.

It also asked for the information to be submitted as an Excel file to allow for tracing, linking, and adjusting, explaining that forecasts had to be calculated according to consistent and rational standards. An additional request was made for companies’ different profit and loss scenarios based on internal and external circumstances.

The department began accepting investment intent statements on Feb. 28 for semiconductor investment incentives amounting to US$39 billion. It publicly shared guidelines stating that up to 75% of subsidies may be taken back if a company receiving US$150 million or more in incentives records earnings above a certain projection.

The department’s plan appears to be to compare and examine actual expenditures and performance against the company’s profit projections to make determinations on requesting subsidy repayments.

But it is not clear why it is demanding the disclosure of yields, which are treated as top secret by semiconductor companies.

Separately, the department issued a 97-page set of guidelines asking for applicants’ workforce development strategies, including areas such as appropriate investment, hiring, training, employment retention, education on new technology, and workforce diversity.

“The workforce development plan must also demonstrate secured commitments from regional educational and training entities and institutions of higher education to provide workforce training, including programming for training and job placement of economically disadvantaged individuals,” the guidelines also said.

Under this system, companies such as Samsung Electronics and SK Hynix would ultimately have to provide the US with detailed information on yields and other business secrets and assume wide-ranging responsibilities for production workforce education in order to receive subsidies.

In a so-called “guardrail” announced on March 21, the department said that companies receiving subsidies may not expand production in China by more than 5% over a ten-year period. This would leave South Korean companies that want subsidies in the position of bearing the burden of unforeseen developments that arise.

Companies that hope to receive subsidies for advanced semiconductor production facilities built in the US are eligible to submit applications starting Friday, while others planning to build semiconductor production facilities and post-processing facilities will be eligible starting on June 26.

South Korean semiconductor companies have declined to share an official position on the US demands — but insiders described them as “excessive.”

“It isn’t just things like the materials and equipment used for semiconductor production, but things like yields, which are sensitive information only shared with certain people even within the company,” said an official at one semiconductor company.

“That’s not the sort of thing you can disclose to the outside,” they explained.

By Lee Bon-young, Washington correspondent; Lee Jeong-hun, staff reporter

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

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