U.S.-China chip war could hurt South Korea’s tech giants — but not for long, Fitch says
Samsung Electronics Co. 8GB Double-Data-Rate (DDR) 4 memory modules.
SeongJoon Cho | Bloomberg | Getty Images
The U.S.-China chip war could impact South Korea’s chip giants as China accounts for a large chunk of their production capacity — but there shouldn’t be long-term disruptions, according to Fitch Ratings.
Samsung Electronics and SK Hynix face risks as the U.S. seeks to block China’s access to advanced semiconductor chip equipment, according to the June 7 report.
related investing news
China accounts for 40% of Samsung’s total flash memory chips (NAND) production capability, said the analysts led by Matt Jamieson. It also accounts for 40%-50% of SK Hynix’s dynamic random access memory (DRAM) chips and 20% of its NAND capacity.
“We do not think there would be a major long-term supply disruption, as it is likely that Korea will become the main location for the two companies’ expansionary investment and technology upgrades,” the credit ratings agency said in the June 7 report.
The U.S. in October introduced sweeping rules to cut off China’s access to obtain or manufacture high-tech semiconductor chips. They came as concerns grew over China’s ability to use such high-tech chips to advance its military capabilities. The Netherlands and Japan are reportedly poised to follow suit.
Samsung Electronics and SK Hynix are the two largest manufacturers of memory chips globally, followed by U.S.-based Micron in third place. Memory chips are storage devices used in computers, smartphones and tablets.
The companies’ fabrication plants in China make advanced chips as well as older chips, which are exempted from the U.S. restrictions. The memory chips are produced for Chinese consumption as well as exports.
However, the two chip giants obtained one-year waivers from the U.S. to continue importing advanced tools for their China plants until October, according to the Korea Times.
“Should the U.S. not extend the waiver, we expect the companies to continue producing memory chips at their Chinese plants using already installed technology,” said Fitch Ratings.
Benefit from Micron ban
In what is seen as a retaliatory move, China banned the sale of products from Micron for use in critical information infrastructure in May.
Fitch Ratings said Samsung and SK Hynix “may benefit from higher chip prices within China as a result. However, the impact is likely to be small and could be offset if Micron redirects the sale of its memory chips outside of China, as this would probably lower global chip prices.”
The White House reportedly urged South Korea not let its chipmakers fill Micron‘s void in China. Around 10% of Micron’s revenue come from China, according to Micron’s fiscal 2022 report.
The Fitch report said the two South Korean chipmakers will at least partially fill Micron’s gap. “It will be difficult to monitor what capacity lost by Micron is actually filled by the Korean companies, given the commodity-like nature of memory chips.”
“The logistics of this strategy could take time, but could offset any positive impact Samsung Electronics and SK Hynix may obtain from the ban on Micron within China in light of the world’s memory chip oversupply,” the analysts said.
However, risks could further increase if the U.S. or China implement more extreme rulings and bans, as it will affect the cost and availability of semiconductor supply-chain components, they added.
CEO of Tesla Motors Elon Musk speaks at the Tesla Giga Texas manufacturing “Cyber Rodeo” grand opening party on April 7, 2022 in Austin, Texas.
Suzanne Cordeiro | AFP | Getty Images
Tesla is eliminating around 12% of its workforce at a factory in Austin, Texas, as part of a broader restructuring the company announced last week.
According to a Worker Adjustment and Retraining Notification (WARN) Act letter on Tuesday, the layoffs affect 2,688 employees at the facility in Travis County. In 2021, Tesla CEO Elon Musk moved the company’s corporate headquarters to Austin from Palo Alto, California.
Musk said in an internal memo last week that Tesla was cutting more than 10% of its global headcount as the electric vehicle maker reckons with flagging sales and increased competition. He didn’t say which departments or locations would be most impacted.
“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” he wrote. A subsequent WARN notice filed in New York indicated that 285 of positions were being eliminated at a factory in Buffalo.
Tesla employed 140,473 people as of December, according to filings.
Tesla officially opened its Texas EV and battery factory in April 2022, with a “cyber rodeo” party. The company now manufactures some of its Model Y crossover utility vehicles in Austin, and has started to build its Cybertruck there.
Musk later called the Austin factory, and another assembly plant in Germany, “gigantic money furnaces,” in an interview with Tesla Owners Silicon Valley, a fan club that promotes Tesla vehicles.
According to filings with the Texas Department of Licensing and Regulation revealed, Tesla was planning to spend upward of $770 million last year on the construction of expanded facilities in Austin, including for battery cell testing and manufacturing, cathode and drive unit manufacturing, and a die shop, among other things.
Tuesday’s WARN filing said that “none of the employees are represented by a union and none of the employees have bumping rights,” or the right of more senior workers to replace those with less seniority.
Executives are expected to discuss the restructuring on the company’s quarterly earnings call at 5:30 p.m. ET.
WATCH: Tesla set to report earnings
Tesla vehicles sit on the lot at a Tesla dealership in Austin, Texas, on April 15, 2024.
Brandon Bell | Getty Images
Tesla is set to report first-quarter earnings after the bell on Tuesday.
Here is what analysts are expecting, according to LSEG:
- Earnings per share: 51 cents
- Revenue: $22.15 billion
Wall Street is projecting revenue will drop 5.1% from $23.33 billion a year earlier, which would mark the first year-over-year drop in sales since 2020, when the Covid-19 pandemic disrupted production.
Tesla shares have plummeted 42% this year on concerns about weak deliveries, competition in China and the company’s ongoing price cuts. Earlier this month, Tesla reported an 8.5% year-over-year decline in vehicle deliveries for the first quarter.
Elon Musk’s electric vehicle company is now facing heightened competition worldwide, with fully electric cars still in demand but sales growth in the segment slowing. Tesla and key rivals have been slashing EV prices, on and off for months, to try to spur demand.
Tesla embarked on a massive restructuring this month with two executives, Drew Baglino and Rohan Patel, resigning. Musk said last week in a companywide memo that the automaker was cutting more than 10% of its global workforce.
The layoffs and resignations followed a Reuters report that said Tesla would scrap plans to make a low-cost electric car in the near future, and instead focus on self-driving technology. While Musk initially balked at the report, he later said in a post on social media site X that Tesla would go “balls to the wall for autonomy.”
Musk has promised investors and customers a self-driving vehicle for years, but never delivered.
He is now saying there will be an unveiling of a Tesla robotaxi on Aug. 8, 2024. Unveiling events do not mean a vehicle is ready to be produced. For example, Tesla first unveiled a new version of its Roadster in December 2017, and has yet to produce the car.
Shareholders submitted and voted on questions for Tesla executives to answer ahead of Tuesday’s call. Submissions included a request for a “realistic timeline for launching a revenue-generating robotaxi network,” and a progress update on a “cheaper next-generation vehicle.”
A livestream of the earnings call is scheduled for 5:30 p.m. ET.
WATCH: The fact that Musk was right about EVs doesn’t mean he’s going to be right now
-
Sports1 year ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Environment11 months agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Sports6 months agoGame 1 of WS least-watched in recorded history
-
Environment1 year agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Technology3 years ago
Game consoles were once banned in China. Now Chinese developers want a slice of the $49 billion pie
-
Politics2 years ago
Have the last few wobbly weeks seen a turning point for Johnson as PM?