Samsung, SK Hynix on toes as US tightens restrictions on Huawei

Korean chipmakers Samsung Electronics Co. and SK Hynix Inc. are on guard as the US Department of Commerce toughens its restrictions on Chinese tech company Huawei Technologies Co.

There is much attention on how the amended restrictions will affect Samsung and SK Hynix’s relationship with Huawei as the two Korean chipmakers fetch about 10 trillion won annually by supplying DRAM and NAND Flash to the Chinese tech giant. Neither company has disclosed specific figures, but Huawei has been one of Samsung Electronics' top-five revenue sources.

Huawei came under scrutiny of the Trump administration during a heated trade war between the US and China. In May 2019, the Commerce Department released its first set of restrictions against the Chinese tech company to limit its access to US technology, which included supplier Taiwan Semiconductor Manufacturing Company (TSMC).

On August 17, the US Commerce Department released additional restrictions against Huawei, adding 38 affiliates to its Entity List, which imposes licensing requirements for companies wanting to export US items and technology to the Chinese company. This brings the Entity List total to 152 companies -- comprised of Huawei and its affiliates from over 21 countries.

There is a strong consensus within the industry that the updated restrictions may stem from Huawei’s attempt to make smartphones by importing Taiwan-based MediaTek's application processors after its access to TSMC was restricted.

“It makes clear that we’re covering off-the-shelf designs that Huawei may be seeking to purchase from a third-party design house,” said a Commerce Department official according to US-based media outlet Reuters.

The key message from the latest restrictions is clear: ban all exports of US technology and items to Huawei. The intent is to cut off the Chinese company's access to semiconductors since there are almost no semiconductor companies that do not include US items or technology, according to industry sources.

“There would have been much noise if DRAM and NAND Flash were included in the restrictions, but everything appears to be quiet,” a source from Samsung said, indicating that it may not be problematic.

The US-based offices of Samsung Electronics and SK Hynix are reflecting on their status after the restrictions, according to a source from the semiconductor industry.

"Based on the restrictions, DRAM and NAND Flash are likely to require approval from the US government," said Yeon Won-ho, a researcher at the Korea Institute for International Economic Policy. He pointed out that the newly placed restrictions will come into effect from August 20.

The US Commerce Department's restrictions may not be problematic if export approvals are granted for DRAM and NAND Flash.

If export approvals are denied, then Samsung Electronics and SK Hynix's revenues might suffer in the short term from losing Huawei as a client. The damage is not expected to last long, however, as other industry giants, such as Xiaomi, Oppo, Nokia, and Ericsson will be able to fill the gap in the mid to long term, said a source from the semiconductor association.

"DRAM and NAND Flash demand won't see much of a change in markets that aren't monopolized by Huawei," the source added.

Meanwhile, Huawei has stepped up its autonomous vehicle component business to diversify amid intensified restrictions from the US.

Write to Jeong-soo Hwang at hjs@hankyung.com