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Exclusive-U.S.-China tech war clouds SK Hynix’s plans for a key chip factory -Breaking

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© Reuters. FILE PHOTO SK Hynix logo seen at Seongnam in South Korea’s April 25th 2016. REUTERS/Kim Hong-Ji

Joyce Lee, Stephen Nellis, and Toby Sterling

SEOUL (Reuters). SK Hynix’s plans to renovate a large facility in China to make more memory chips are at risk. Sources familiar with the situation told Reuters that the U.S. government does not want the advanced equipment needed to get into China.

The possibility of SK Hynix being impacted by the US-China geopolitical conflict could lead to SK Hynix becoming the next victim. SK Hynix is one the biggest global suppliers DRAM memory chips, used in all manner of devices, including data centers.

According to three sources, SK Hynix’s production plans include the addition of some ultra violet lithography (EUV), chip-making machines manufactured by ASML in the Netherlands.

In the past, the United States objected to the idea of shipping advanced technology to China to help strengthen its military.

Unofficial White House spokesperson declined to speak specifically about whether U.S. officials will allow SK Hynix access to EUV tools for China. The official said that the Biden government is focused on preventing China’s use of U.S. technologies and allied technology to create state-of the-art semiconductor manufacturing facilities that could help China modernize their military.

Because it produces about half the DRAM chips for SK Hynix, the Wuxi plant is crucial to the worldwide electronics industry. This amounts to 15% of all global production. Global memory markets could be affected by any major changes. Analyst firm IDC claims that demand for DRAM chips is expected to grow at 19% annually in 2021.

According to a Chinese source, the EUV machines will be needed by SK Hynix to reduce costs and speed up production as newer chips become more common in the next two-to three year period.

There have been no reports about the severity of the problems at SK Hynix. If this situation does not resolve in the next few years, SK Hynix may be at a disadvantage to rivals like No. The other major DRAM players are Micron Technology (NASDAQ) and Samsung Electronics (OTC) Co Ltd, the first memory chipmaker. Micron (KS:), Samsung Electronics (OTC:) Co Ltd and Micron have also switched to ASML’s EUV machines, although they do not use them at their factory locations due to export restrictions.

According to two persons briefed, Chief Executive Lee Seokhee brought up the ASML machine question during SK Hynix’s July visit to Washington, D.C. Two people who were present at his meeting with U.S. officials expressed concern.

SK Hynix did not comment, but said that its business is flexible to different market conditions and does all it can to meet customer and market demands.

Trump successfully led an aggressive campaign against the sale ASML’s technology China’s Semiconductor Manufacturer International Corp. The White House also lobby the Netherlands government and shared a classified intelligence document with China’s Prime Minister.

ASML spokeswoman said the company adheres to all export laws and considers them a valid tool for national security. However, the company stated that the excessive use of these controls could impact production capacities needed to meet the growing demand for semiconductors.

A spokesperson for the company stated in a statement that “it is possible that widespread export controls could increase microchip supply chains issues, which have already been a major concern by governments and policy makers worldwide because of the spillover effect on other industries.”

Analysts believe that the U.S. will not view SK Hynix’s attempts to introduce an EUV tool in China differently from earlier Chinese efforts.

Dan Hutcheson is the chief executive officer for VLSIresearch. Hutcheson stated that “they’re really caught between Chinese rock and U.S. difficult spot” adding that all chip manufacturing operations in China (whether they be domestic or foreign) would most likely fall under his jurisdiction. The EUV tool gives China the ability. You don’t know where it will lead after it has been placed. It could be taken by the Chinese or used for whatever purpose they choose.”

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