U.S. Semiconductor Industry Faces Increased Uncertainty Amid China's Tech Advances

Domestic semiconductor giants Samsung Electronics and SK Hynix are facing increasing uncertainty in the global market. Chinese semiconductor companies are aggressively ramping up research and development (R&D) investments and personnel, while concerns about regulations on artificial intelligence (AI) data center construction are rising in the United States following the Democratic Party's midterm election victories.

According to industry sources on November 8, the R&D workforce at China's DRAM manufacturer Changxin Memory Technologies (CXMT) surged to 7,491 by mid-2023, a 60.9% increase from 4,655 during the same period last year. This figure represents 77.6% of SK Hynix's R&D staff of 9,651 as of the end of last year. In contrast, SK Hynix's R&D personnel grew by only 6% from 9,104 in 2024 to 9,651 last year, highlighting the rapid expansion of CXMT's workforce. CXMT also reported a 34% increase in average salaries for R&D staff, rising from 310,700 yuan last year to 416,200 yuan this year, indicating a strong push to attract talent.

The increase in R&D spending is also significant. CXMT's R&D investment jumped from 4.67 billion yuan in 2023 to 9.593 billion yuan last year, marking a 105.4% increase over two years. From January to September this year, the investment reached approximately 11 billion yuan (about 2.2 trillion won), a 73% increase compared to the same period last year.

This aggressive investment from China is likely to intensify competition in the general DRAM market. CXMT reported third-quarter revenues of 118.7 billion yuan (approximately 23.8 trillion won), a staggering 613% increase year-on-year. While there remains a technological gap in advanced products like high-bandwidth memory (HBM) compared to domestic firms, CXMT is gaining significant traction in the general market.

Additionally, new variables are emerging for the U.S. AI memory demand that has been driving the performance of domestic semiconductor companies. Following the midterm elections on November 3, the Democratic Party's 'Blue Wave' has materialized, with candidates who pledged to regulate data center construction winning key gubernatorial races. Given the surge in demand for HBM and server DRAM due to increased AI infrastructure investment, delays in data center construction could dampen the growth in memory demand.

In Texas, a major hub for data centers, Governor-elect Gina Hinojosa has stated that new data center permits will be halted until measures for power and water resource protection are established. Similarly, Georgia's Keisha Lance Bottoms and Ohio's Amy Acton have also pledged to impose restrictions on data center construction. Goldman Sachs has analyzed that approximately 45% of the planned data center expansion capacity in the U.S. could be affected by temporary construction halts.

Currently, the immediate impact on domestic companies' performance is limited. Samsung Electronics and SK Hynix have secured a significant portion of their memory supply for next year through long-term supply agreements with major clients. However, delays in data center construction could lead to adjustments in server deployment and memory delivery schedules for clients. Even with secured supply volumes, uncertainties may arise regarding the timing of revenue recognition and future demand forecasts.

The challenge lies in the fact that both Samsung Electronics and SK Hynix are pursuing large-scale facility investments at a time when variables are increasing on both the supply and demand sides. Samsung plans to invest 76.8 trillion won in semiconductor facilities this year, a 61.7% increase from last year. SK Hynix is also expected to raise its investment from 30.173 trillion won last year to the upper 40 trillion won range this year. If China's expansion of general memory supply and delays in U.S. AI infrastructure investment materialize, it could pose long-term challenges for domestic companies in terms of capacity expansion and profitability.