China’s New Chip Ban on Micron Puts South Korea in a Delicate Spot

Amid a series of tit-for-tat trade moves between Beijing and Washington, China, citing national-security risks, banned certain local firms in key information-infrastructure industries from buying memory chips from Micron. The clampdown affects parts of Micron’s roughly $3 billion in annual sales from China.

South Korea, a U.S. ally, is home to Micron’s two largest rivals in the memory-chip business, Samsung Electronics and SK Hynix. But cashing in on Micron’s woes in China won’t be easy for South Korea, Samsung or SK Hynix. Geopolitics complicate what could be a welcome opportunity to boost sales during a major downturn in the memory market.

How South Korea’s chip industry reacts will largely determine to what extent China’s ban on Micron proves a success for Beijing—or widens the supply chain gulf with the U.S. and its allies. China’s own memory chip makers can’t currently match the technology and production capacity of Micron, Samsung and SK Hynix, industry analysts say.

The two South Korean firms and Micron last year represented about 95% of the market for DRAM and roughly 64% for NAND flash, the two major types of memory, according to TrendForce, a tech-market research firm.

Any American pressure campaign could prove painful to South Korea, Samsung and SK Hynix, as they have deep exposure to China.

China, by far, is South Korea’s largest trade partner. Samsung and SK Hynix both operate semiconductor facilities inside China, which is a key market for the two companies and the global supply chain. The two firms together produce about 22% of the world’s NAND flash memory supply from China, while SK Hynix provides about 12% of global DRAM production from the country, according to TrendForce.

South Korea has drawn even closer to Washington under conservative leader Yoon Suk Yeol, who took office a year ago and just got back from a successful visit to Washington where he sang “American Pie" at President Biden’s request during a state dinner at the White House.

Despite protests from Beijing, Seoul has joined Washington-led efforts to build up tech supply chains and economic initiatives that exclude China, including the so-called “Chip 4" semiconductor alliance and the Indo-Pacific Economic Framework.

After Beijing’s Micron ban, the U.S. Commerce Department on Sunday said it would engage with key allies and partners to address “distortions of the memory chip market caused by China’s actions."

But South Korean support has its limits. Unlike fellow American allies Japan and the Netherlands, Seoul hasn’t put forth its own chip-industry restrictions that would compliment the Biden administration’s efforts to curb China’s access to high-end semiconductors. Samsung and SK Hynix have been sensitive about Washington’s ban on advanced chip-making equipment exports to China and have had to obtain exemptions from the U.S. to keep operating their China-based factories.

China’s Micron ban wouldn’t bring harm to South Korea’s chip makers, said South Korea’s vice minister for the Ministry of Trade, Industry and Energy, on Monday. Last week, in a meeting with foreign media, South Korean trade minister Ahn Duk-geun said he hadn’t received a request from the U.S. on moves in response to a potential Chinese ban of Micron. Even if the South Korean government was asked to engage, Ahn said any decision would be left to the individual companies.

“It’s hard for the government to dictate what a company should or should not do," Ahn said.

Samsung Electronics said it didn’t have a comment. A SK Hynix spokeswoman said it hadn’t received a request from the South Korean government on the matter.

Not all of Micron’s $3.3 billion in revenue in China will be blocked. Roughly a fifth of the U.S. chipmaker’s sales in the country are expected to be affected by the ban, according to a Bernstein Research note to investors. Other parts of Micron’s China business, such as semiconductors that go inside consumer tech products that get sold outside of the country, aren’t legally bound to the ban, according to Bernstein Research.

In addition to Samsung and SK Hynix, Japanese memory makers Kioxia and Western Digital could serve as alternative vendors for Chinese firms. But the odds that the South Korean and Japanese firms ignore U.S. requests—given other American limits on chip business in China—are “very low," the Bernstein Research analysts wrote.

The Micron ban, an apparent political gesture aimed at responding to Washington’s curbs on advanced chip making technology to China, came from China’s Cyberspace Administration. The regulator didn’t provide a specific definition for “operators of critical information infrastructure," though the term is typically associated with government agencies, state-owned enterprises and sectors including finance, telecom operators and cloud-service providers.

Any pickup by Micron’s rivals for the affected business would “not be significant" to any one company, assuming the business would be distributed among competitors, said TrendForce analyst Avril Wu.

The U.S. has been seeking its allies’ cooperation in the areas of advanced semiconductors, which are viewed increasingly as a centerpiece of national security and a technology that it has sought to prevent China from advancing on.

Last week, government and business leaders from the U.S., Japan, South Korea and Taiwan—part of a coalition of chip powerhouses—met and said they would seek ways to “counter malign practices" by China and “foster resilience to economic coercion." The meeting came on the eve of the Group of Seven summit held in Hiroshima, Japan, where Beijing’s perceived economic intimidation was a central theme.