Taiwan Semiconductor Manufacturing Co. has lost its authorization to ship vital equipment freely to their main Chinese plant, thus tightening Beijing’s restrictions regarding access to chip-making technology.
TSMC stated that Washington informed them of their decision to remove “validated End User” status from its Nanjing factory effective December 31,
This designation allowed semiconductor suppliers to export equipment that was subject to US export control without the need for individual licenses.
This move is similar to one taken against Samsung Electronics last week, whose factories in China also benefited by blanket approvals.
All three companies must now obtain individual authorizations for each case, which will complicate operations at their Chinese locations.
Washington and Beijing are currently negotiating to prepare for a possible meeting between US President Donald Trump, and Chinese Leader Xi Jinping later in the year.
To avoid derailing negotiations, the Trump administration avoided the most severe export restrictions. However, it has indicated a more aggressive stance towards semiconductor technology transfer.
We are evaluating and implementing appropriate measures to ensure the continued operation of TSMC Nanjing, which includes communicating with the US Government.
TSMC financials will be minimally affected by the move
The impact of the Chinese operation on TSMC will be minimal, according to analysts.
Nanjing’s plant started production in 2018 using a technology that is as sophisticated as the 16 nanometer process which was introduced more than 10 years ago.
It produces chips at lower prices, so it only contributes around 3% to TSMC’s capacity.
Morningstar’s senior equity analyst Phelix Le said that the loss of VEU was “unexpected, but shouldn’t have much impact on earnings or valuation.”
He said that TSMC could divert equipment ordered originally for Japan to Nanjing to create spare capacity before the deadline of December.
TSMC’s shares dropped 3.7% on Tuesday in New York following the announcement.
Samsung and SK Hynix to be more affected by the revocation
Samsung and SK Hynix could be more affected by the revocation, as their production in China represents a larger portion of their total output.
The analyst Han Dong Hee of SK Securities said that removing the rules for “validated users” would have made it more difficult for Samsung and SK Hynix in China to upgrade or expand their facilities.
Han said that the South Korean chip manufacturers could struggle in order to remain competitive with their Chinese competitors on the traditional-chip market.
Samsung manufactures around 40% NAND in China. SK Hynix, on the other hand, relies heavily on Chinese factories for approximately 40% DRAM and 30% NAND.
Minsook Hwang and JT Chae, analysts at Korea Investment & Securities warned of the possibility that there could be a shortage and a rise in memory prices if Samsung’s NAND and DRAM plants in Xi’an were to shut down or SK Hynix’s DRAM/NAND and Wuxi/Dalian’s DRAM/NAND factories went offline.
They said that if prices rise due to instability, cloud service providers in the US could suffer significant losses.
China’s future is more important to analysts
Analysts have highlighted that the financial impact of this move on TSMC is minor. However, it has a much greater significance for China’s ambitions in the semiconductor industry.
Charu Chanana is the chief investment strategist for Saxo Singapore. She said that Washington is more concerned about China’s long-term chip production capacity than today’s profits.
Citi Research analyst Kevin Chen stated that Chinese memory manufacturers may have an advantage if they are restricted from expanding operations by foreign suppliers, which could boost domestic demand.
The post US Equipment Restraints Expected to Impact Samsung, SK Hynix More Than TSMC could be updated as new information becomes available
