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You are here: Home / entrepreneur / US chip subsidies alarm Korean companies with tough conditions

Mar 03 2023

US chip subsidies alarm Korean companies with tough conditions

South Korean chipmakers have expressed alarm at tough conditions revealed this week for companies taking advantage of a $39bn US federal fund designed to encourage advanced chip manufacturing in America.

Of particular concern is a requirement for companies to share some of their unexpected excess profits with the US government, according to a clause in commerce department guidelines unveiled this week for applications for funds from the Chips Act, passed by Congress last year.

The new subsidies are aimed at building a leading edge US semiconductor industry as part of efforts to counter China, but South Korean chipmakers such as Samsung Electronics and SK Hynix are worried about the implications as they plan to build plants in the US and still rely heavily on their chipmaking operations in China.

Seoul’s former trade minister Yeo Han-koo said the clause about excess profit-sharing seemed “problematic”, calling it an “unprecedented move charting a new territory that we haven’t seen in recent years”.

“Many companies may cry out on this. It may set a worrisome precedent for other countries who may follow suit,” he told the Financial Times.

The commerce department said companies that received more than $150mn would have to return some money to the government when they made returns that surpassed original projections by an agreed threshold. Samsung and SK Hynix said they were reviewing the 75-page guidelines, but declined to comment further.

The safeguards have been put in place to ensure the subsidy programme is not abused as chipmakers prepare to submit their applications. Samsung is building a $17bn foundry in Taylor, Texas, while SK Hynix is planning to build an advanced chip packaging plant in the US.

“We’re perplexed by these unexpected conditions. We’ve never seen anything like this for state incentives,” said an industry executive. “It is unclear how they will calculate excess profits. They want to take some of our profits when the business is booming but they won’t return our money when the industry is in a downturn. This will be a key point of contention.”

Yeo cautioned that the profit-sharing scheme would have huge ramifications for the industry. “It is a complex matter how to define excess profits. This will give the regulator a huge discretionary power in implementing it, while companies will be incentivised to set the threshold higher,” he said.

South Korean chipmakers have been caught up in growing US-China tech rivalry as Washington’s curbs on technology transfers threaten to weaken their competitiveness in China. Under the Chips Act, they are required not to expand capacity in China for a decade in order to receive federal funding.

The chipmakers are now awaiting details of the “guardrails” that have made them rethink their exposure to China. SK Hynix’s Wuxi plant in eastern China accounts for nearly half of its Dram memory chip production, while Samsung’s plant in Xian takes up about 40 per cent of its Nand flash memory output, according to analyst estimates.

“Now that Pandora’s box is open, this will deepen Korean chipmakers’ anguish over their future investment plans,” said Lee Jae-min, a law professor at Seoul National University and an expert in international trade disputes. “They will be worried that their sensitive R&D and financial information will fall into the hands of a foreign government.”

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US chip subsidies alarm Korean companies with tough conditions Republished from Source https://www.ft.com/content/c285a4f2-de0a-4370-88e3-7bbc32f8c314 via https://www.ft.com/companies/technology?format=rss

Written by Song Jung-a in Seoul · Categorized: entrepreneur, Technology · Tagged: entrepreneur, Technology

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