New US export rules could wreck chipset supply chain

US export supply chain
REUTERS/Florence Lo/Illustration

OAKLAND, Calif./NEW YORK (Reuters) – The US is scrambling to tackle unintended consequences of its new export curbs on China’s chip industry that could inadvertently harm the semiconductor supply chain, people familiar with the matter said.

Hours before a new restriction took effect, South Korean memory chipmaker SK Hynix said it got authorization from the United States to receive goods for its chip production facilities in China without additional licensing imposed by the new rules.

Separately, Taiwan Semiconductor Manufacturing Co (TSMC) secured a one-year license to continue ordering American chipmaking equipment for its expansion in China, Nikkei Asia reported on Thursday.

The US government assured TSMC that it will be able to ship the equipment to a manufacturing facility in the Chinese city of Nanjing, Nikkei report said, citing people familiar with the matter. TSMC did not immediately respond to Reuters’ request for comment.

US rules omit exemptions

The Biden administration had planned to spare foreign companies operating in China such as SK Hynix and Samsung Electronics from the brunt of new restrictions, but the rules published Friday did not exempt such firms.

As published, the rules require licenses before US exports can be shipped to facilities with advanced chip production in China as part of a US bid to slow China’s technological and military advances.

And as of midnight Tuesday, vendors also could not support, service and send non-US supplies to the China-based factories without licenses if US companies or people are involved.

As a result, even basic items like light bulbs, springs, and bolts that keep tools running may not have been able to be shipped until vendors are granted licenses. And without the minute-by-minute support the foundries need, they could begin shutting down, one source said.

“Our discussions with the Department of Commerce led to an approval to supply equipment and items needed for development and production of DRAM semiconductors in Chinese facilities without additional licensing requirements,” SK Hynix said in a statement.

The company said the change would help avoid disruptions to the supply chain and that the authorization is for a year.

Samsung Electronics declined to comment.

Temporary fix

Another source said the temporary fix was until a longer-term solution could be worked out.

A US Commerce Department spokesperson did not directly respond to a request for comment on the authorizations, but said the department hopes to get input from stakeholders about the rule and may consider changes.

A White House spokesperson also did not respond to a request for comment.

“Unless the authorization was issued, a variety of equipment and other suppliers would have had to pull their personnel from the fabs in China,” one of the sources said.

The US planned to review licenses for non-Chinese factories in China hit by the new restrictions on a case-by-case basis, but even if approved that could create delays in shipments. Licenses for Chinese chip factories were likely to be denied.

Intel Corp also operates chip factories in China.

Chinese chip facilities are not expected to get any reprieve.

(By Jane Lanhee Lee, Karen Freifeld and Alexandra Alper; Reporting By Jane Lanhee Lee and Karen Freifeld; Additional reporting by Akriti Sharma; Editing by Kim Coghill and Richard Pullin)

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