Shares in Samsung, SK Hynix drop after US makes it harder to produce chips in China

The U.S. government revoked authorizations allowing South Korean chipmakers Samsung Electronics and SK Hynix to secure U.S. semiconductor manufacturing equipment for their China-based plants, leading to immediate share drops for both companies (SK Hynix -4.8%, Samsung -3%). This policy shift, ending previous exemptions, is set to hinder factory upgrades and could erode their long-term competitiveness, particularly for SK Hynix, which has 30-40% of its DRAM and NAND production in China. The move also impacts U.S. equipment suppliers and the broader South Korean chip ecosystem, potentially benefiting rivals less reliant on China for production.

Analysis

The U.S. government's revocation of authorizations for Samsung Electronics (005930.KS) and SK Hynix (000660.KS) to secure U.S. equipment for their China-based chip plants triggered an immediate negative market reaction, with SK Hynix shares falling 4.8% and Samsung's dropping 3%. This policy shift, effective in 120 days, removes crucial exemptions and is expected to impede factory upgrades, thereby eroding the long-term competitiveness of their Chinese operations. The impact is disproportionately higher for SK Hynix, which bases 30-40% of its DRAM and NAND production in China, whereas Samsung's exposure is limited to approximately one-third of its NAND output. While an analyst suggests the short-term impact may be limited due to new production lines being planned in South Korea, the move is seen as a potential boon for rivals like Micron (MU.O) with less China-based production. The ripple effects extend across the supply chain, hitting South Korean suppliers like Hanmi Semiconductor (-6.3%) and signaling reduced sales for U.S. equipment makers such as KLA (KLAC), Lam Research (LRCX), and Applied Materials (AMAT). This action, framed as a reexamination of previously relaxed export controls, underscores escalating geopolitical risk in the semiconductor sector, compounded by the mention of potential 100% tariffs on imported chips.

Key Decisions for Investors

• Investors in SK Hynix (000660.KS) and Samsung (005930.KS) must assess the companies' strategies to mitigate the impact on their China operations, recognizing the significantly higher operational risk for SK Hynix given its 30-40% production concentration in the region.
• The policy change creates a competitive advantage for rivals like Micron (MU), which has less production reliance on China, presenting a potential relative value opportunity against its South Korean peers.
• Holders of U.S. semiconductor equipment stocks, including KLA (KLAC), Lam Research (LRCX), and Applied Materials (AMAT), should factor in reduced sales to China as a direct headwind to future revenue forecasts.
• The heightened geopolitical environment, marked by tightening U.S. export controls and tariff threats, warrants applying a higher risk premium to semiconductor firms with significant exposure to the U.S.-China supply chain.