Much has changed since 2006 when the former chief executive of SK Hynix said that the opening of the company’s first semiconductor foundry in Wuxi in China marked the “establishment of a global network linking South Korea, the US and China”.
The proceeding decade-and-a-half had seen the South Korean firm move more of its production capacity to Jiangsu province, where the fabrication plant (fab) is located. Today, it accounts for 40% of its memory chip production (DRAM).
However, the company now finds itself at the sharp end of the Sino-US tech war. If its fab is to upgrade its output, it needs to deploy EUV (extreme ultraviolet light) lithography technology to make chips at the smallest production nodes. But it can’t import the necessary machines from Holland’s ASML to do this, after the US government persuaded its Dutch counterpart that sales of EUV technology into the Chinese market could breach the Wassenaar Agreement on the dual-use of technology for civilian and military purposes.
Analysts believe that SK Hynix still has a little leeway to resolve the supply problem as it can deploy EUV machines at its South Korean fabs instead. But this summer the company failed in efforts to lobby the US government to relax the export restrictions and its concerns have been widely reported in the Chinese and international media.
Lee Jung-bae, head of South Korea’s Semiconductor Industry Association, summed up the situation in highlighting how the industry has been drawn “into fighting a war without bullets”.
SK Hynix will look for options for how it might resolve the situation. There’s always the possibility that the Chinese will develop their own version of EUV technology by the middle of the decade, which SK Hynix could then deploy, for instance.
Washington’s export ban has intensified Beijing’s determination to build an advanced manufacturing chain of its own without the need for international inputs. Lithography is the most technically complex part of the process. The Chinese have already mastered deep ultraviolet (DUV) technology (EUV’s predecessor) at the lower end of the manufacturing scale (90nm). Some technology bloggers think that Shanghai Micro Electronic Equipment (SMEE) may have made the jump to the 28nm process node level too, although no one is sure of it (such is the secrecy around breakthroughs in the sector).
ASML itself is now moving onto a new generation of EUV called high numerical aperture. This will deploy 8nm wavelengths of light, compared to the 13.5nm levels in its current scanners.
Meanwhile Intel has thrown its hat into the ring to become the first client for the new technology in a bid to close the technical gap on TSMC and Samsung Electronics, two rival foundries. Just under a decade ago, the three manufacturing giants all took stakes in ASML as a way of providing the R&D funds it needed to further develop EUV. Intel and Samsung still have residual stakes of around 3% each in the specialist Dutch manufacturer.
The commercial and geopolitical imperatives that bind ASML, Intel, Samsung and TSMC together seem to be getting tighter. As such, another option for SK Hynix as a customer for EUV machines is to ramp up production at its American business and wind down its operations in China.
Earlier this year Hynix said that it would set up an R&D centre in California. Samsung is also making new commitments to the US market, announcing plans this week for a $17 billion semiconductor plant in Taylor City, Texas. The Korean pair also confirmed their compliance with requests from the US government to hand over internal sales data by a November 8 deadline. TSMC – the leading Taiwanese foundry – met the same deadline.
Both South Korea and Taiwan worry that sensitive commercial information might leak, helping rivals like Intel as Washington lobbies its own firms to create an end-to-end advanced manufacturing chain for semiconductors on American soil.
The request for sales information also drew a sharp response in China, with an editorial in Xinhua lambasting the “plot to forge a US-dominated global semiconductor supply chain”.
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