U.S. government considers annual permits for Samsung and SK hynix to supply equipment to their Chinese fabs

The U.S. government is apparently mulling over the decision to replace indefinite wafer fab equipment export permissions for Samsung and SK hynix’s with annual licenses. The decision will add significant regulatory complexity, but will at least maintain continuity for fab operations, which means no disruption to the highly-volatile global supply of DRAM and NAND memory, reports Bloomberg.

Previously, Samsung and SK hynix operated under validated end-user (VEU) status, which granted them blanket approval to import restricted wafer fab equipment (WFE) to their Chinese fabs based on upfront compliance with U.S. security and monitoring measures, which greatly streamlined their operations. Those permissions are set to expire at the end of this year.

In place of VEU, the U.S. Commerce Department has floated a ‘site license’ model, presented recently to South Korean officials. Under this approach, Samsung and SK hynix would need to apply once a year to obtain permission for a fixed set of equipment and materials, specifying quantities in advance. The aim is to keep the fabs running without enabling upgrades or expansions that could boost China’s access to advanced chip technology.

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While this compromise would prevent supply chain shocks, South Korean officials and executives are concerned about its inflexibility. Equipment breakdowns or unexpected repair needs which might not be covered in the initial license, potentially leading to delays if new approvals are required mid-year. U.S. officials have responded by stating that urgent licenses can be granted quickly, but doubts remain within the industry.

The change in export control policy follows U.S. export restrictions on American tools that can be used to make logic chips using 16nm-class or more advanced nodes with FinFET transistors, DRAMs with a half-pitch size of 18nm, and 3D NAND flash with 128 layers or more, which were initiated in 2022 to limit China’s development of advanced chips and computers. However, Intel, Samsung, SK hynix, and TSMC received wavers to simplify running their fabs in China.

Ultimately, Washington seeks greater visibility into what is being shipped into Chinese fabs, even when those facilities are owned by companies from allied nations, such as South Korea and Taiwan. Despite objections, the annual site license model may be the most workable option available. Trump officials reportedly remain firm in opposing a return to the VEU framework, which they criticize as a loophole from the Biden era. However, processing thousands of individual license applications per year would be unfeasible for both governments and companies.

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