Chip war: Micron aggressions matter less to Samsung than ebbing demand

Call it in-flight diplomacy. The US wants to recruit South Korea as a chip war ally. The effort began before President Yoon Suk Yeol’s plane had even landed in Washington for a state visit.

The White House wants Yoon to discourage chipmakers from filling any supply gap in China if Beijing bans chips made by Micron of the US. The request underlines South Korea’s position as a technological frontier state.

Investors in South Korean chipmakers fear deeper embroilment in the battle between Beijing and Washington. They are right to do so. But the spat over Micron is not financially material to them.

China has launched a security review into Micron, one of the top-three memory chipmakers alongside Samsung Electronics and SK Hynix. Any Chinese sales ban would be a blow to Micron. Mainland China generated about a tenth of its sales for the 2022 fiscal year.

But the value was only $3.3bn. That compares with Samsung’s total sales of $226bn, of which about a third came from chips. The US has no problem with Samsung’s existing sales to China. These stood at $34bn in 2021.

The US added Yangtze Memory Technologies, China’s largest memory chipmaker to its trade blacklist in December, limiting its access to critical technologies. This means South Korean chipmakers’ profits from the country would remain buoyant without fresh sales to any ex-Micron customers.

Micron shares have dropped more than a tenth in the past year. SK Hynix is down a fifth and Samsung only 7 per cent. This mainly reflects expectations of an industry-wide downturn. Companies stockpiled micro processors during pandemic shortages. Global memory chip prices fell a fifth in the first quarter, adding to a similar decline in the previous quarter.

The forecast for chip demand growth this year is at a historic low, with “significant oversupply” in memory chips, according to Gartner. This will overhang stock prices more than the trade spat, unless the latter intensifies.