US mulls action against foreign chipmakers in China, sources say

Bengaluru — The US department of commerce is considering revoking authorisations granted in recent years to global chipmakers Samsung, SK Hynix and TSMC, making it more difficult for them to receive US goods and technology at their plants in China, according to people familiar with the matter.

The chances of the US withdrawing the authorisations are unclear. But with such a move it would be harder for foreign chipmakers to operate in China, where they produce semiconductors used in a wide range of industries.

A White House official said the US was “just laying the groundwork” in case the truce reached between the two countries fell apart. But the official expressed confidence that the trade agreement would go forward and that rare earths would flow from China, as agreed.

Shares fall

“There is currently no intention of deploying this tactic,” the official said. “It’s another tool we want in our toolbox in case either this agreement falls through or any other catalyst throws a wrench in bilateral relations.”

Shares of US chip equipment makers that supply plants in China fell when the Wall Street Journal first reported the news earlier on Friday. KLA Corp dropped 2.4%, Lam Research fell 1.9% and Applied Materials sank 2%. Shares of Micron, a major competitor to Samsung and SK Hynix in the memory chip sector, rose 1.5%.

A TSMC spokesperson declined comment. Samsung and Hynix did not immediately respond to requests for comment. Lam Research, KLA and Applied Materials did not immediately respond, either.

In October 2022, after the US placed sweeping restrictions on US chipmaking equipment to China, it gave foreign manufacturers such as Samsung and Hynix letters authorising them to receive goods.

In 2023 and 2024, the companies received what is known as Validated End User (VEU) status to continue the trade.

Equipment prohibitions

A company with VEU status is able to receive designated goods from a US company without the supplier obtaining multiple export licences to ship to them. VEU status enables entities to receive US-controlled products and technologies “more easily, quickly and reliably”, as the commerce department website puts it.

The VEU authorisations come with conditions, a person familiar with the matter said, including prohibitions on certain equipment and reporting requirements.

“Chipmakers will still be able to operate in China,” a commerce department spokesperson said when asked about the possible revocations. “The new enforcement mechanisms on chips mirror licensing requirements that apply to other semiconductor companies that export to China and ensure the US has an equal and reciprocal process.”

Industry sources said that if it became more difficult for US semiconductor equipment companies to ship to foreign multinationals, it would only help domestic Chinese competitors.

“It’s a gift,” one said.

Reuters