Chinese firms stockpile high-end Samsung chips as they await new US restrictions

HBM chips are key components in the development of advanced processors, such as Nvidia’s graphics processing units, which can be used in work on generative AI | .(Photo: Reuters)

4 minutes of reading Last updated: August 6, 2024 | 12:00 PM IST

Chinese tech giants including Huawei and Baidu, as well as startups, are stockpiling high-bandwidth memory (HBM) semiconductors from Samsung Electronics in anticipation of U.S. export restrictions on those chips to China, three sources said.

Since the beginning of this year, companies have increased their purchases of artificial intelligence (AI)-enabled semiconductors, which could see China account for about 30% of Samsung’s revenue from HBM chips in the first half of 2024, one of the sources said.

The moves show how China is preparing to keep its technology ambitions on track amid rising trade tensions with the U.S. and other Western nations. They also show how the tensions are affecting the global semiconductor supply chain.

U.S. authorities plan to unveil a package of export control rules this month that will impose new restrictions on supplies to China’s semiconductor industry, Reuters reported last week, citing sources.

The sources also said the package would include parameters that would limit access to high-bandwidth memory chips.

The U.S. Commerce Department declined to comment, but in a statement last week said it continually assesses the changing threat environment and updates export controls “to protect U.S. national security and secure our technology ecosystem.”

Reuters was unable to determine details of the proposed HBM restrictions or their impact on China.

HBM chips play a key role in the development of advanced processors, such as Nvidia’s GPUs, which can be used in generative AI work.

The three major manufacturers of HBM integrated circuits are South Korea’s SK Hynix and Samsung, and the US company Micron Technology.

Chinese demand for chips has been largely focused on the HBM2E model, which is two generations behind the most advanced HBM3E version, say sources familiar with China’s interest in HBM. The global AI boom has led to supply shortages of the advanced model.

“Given that domestic technology development has not yet reached full maturity, China’s demand for Samsung’s HBM has become exceptionally high as other manufacturers’ production capacity is already fully booked by U.S. AI companies,” said Nori Chiou, chief investment officer at Singapore-based White Oak Capital Partners.

While it’s hard to estimate the volume or value of HBM chips stockpiled in China, companies ranging from satellite makers to tech companies like Tencent are buying them, sources said. One source said chip design startup Haawking recently ordered HBM chips from Samsung.

Meanwhile, Huawei, according to one source, is using Samsung HBM2E semiconductors to produce its advanced Ascend AI chip.

Samsung and SK Hynix declined to comment. Micron, Baidu, Huawei, Tencent and Haawking did not respond to requests for comment. The sources did not want to be named due to the sensitivity of the topic.

Samsung vs. HBM – competitors

Chinese companies have made some progress in HBM chip production, with Huawei and memory chip maker CXMT focusing on developing HBM2 chips, which are three generations behind the HBM3E model, Reuters previously reported.

But new US regulations could thwart those efforts.

Restrictions on HBM’s sales to China could have a bigger impact on Samsung than on its main rivals, which rely less on the Chinese market, said sources briefed on the sale.

Micron has been refraining from selling its HBM products to China since last year, while SK Hynix, whose main HBM customer includes Nvidia, is focusing more on producing advanced HBM chips.

SK Hynix announced earlier this year that it was adjusting production to increase HBM3E production, but HBM stocks for this year have been sold out and stocks for 2025 are nearly non-existent.

(Only the headline and image of the report may have been edited by the Business Standard team; the rest of the content is automatically generated from a syndicated feed.)

First published: August 6, 2024 | 11:59 AM IST