Anticipated developments in U.S.-China trade relations are looming as the U.SDepartment of Commerce's Bureau of Industry and Security (BIS) plans to unveil stringent export control measures aimed at curtailing advancements in Chinese technologyScheduled for release this Thursday, just before the Thanksgiving holiday, these measures are set to include approximately 200 Chinese chip manufacturers in a trade restriction list, thereby barring them from obtaining products from U.Scompanies.

As of the moment of this writing, no new export control measures have yet been released.

Building upon this, additional regulations targeting the export of High Bandwidth Memory (HBM) to China are expected to be announced in December

These regulations are part of a broader initiative to impede the development of China's artificial intelligence (AI) industry.

The booming interest and investment in AI have significantly propelled the demand for HBM, pushing the technology into a crucial spotlight.

HBM: At the Center of a Storm

The rapid evolution of AI technology necessitates exceptional data processing speed and bandwidth, capabilities which HBM provides effectively.

HBM achieves this through an innovative stacked design, where multiple DRAM chips are stacked vertically and closely connected to GPUs

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This configuration drastically reduces data transmission paths, enhancing data transfer rates and meeting the escalating memory bandwidth demands of AI chips during extensive data calculationsHence, HBM has emerged as an indispensable component for high-performance computation in AI technology.

Reports from August suggested that the U.Swas contemplating new restrictions on semiconductor exports to China, particularly including advanced HBM variants like HBM2, HBM3, and HBM3E, as well as the equipment needed to manufacture these chips within the export control framework.

Since October 2022, there has been a series of frequent restrictions from the U.S., aimed at severing China's access to advanced AI chips from abroad, as well as stifling its capacity for generating advanced semiconductor technologies domestically

HBM, given its integral role in high-performance AI chips, is also encompassed within these reach.

Recently, a spokesperson from the Chinese Ministry of Foreign Affairs expressed strong opposition to the U.S.'s broad interpretation of national security—viewing it as the misuse of export controls that leads to malicious blockades against China, a behavior that severely contravenes market economic principles and fair competition tenets, undermining international trade order and destabilizing global supply chains, ultimately harming the interests of all nations.

Under Siege: Two Storage Giants

Currently, the global market for HBM is highly concentrated, dominated by three major players: SK Hynix, Samsung, and Micron

The implications of these restrictions particularly affect the two leading storage giants, necessitating a look back at their historical context.

First, let’s delve into the two storage titans significantly impacted—SK Hynix and Samsung.

SK Hynix, Caught in the Storm

In October, SK Hynix presented its financial report for the third quarter of fiscal year 2024, which ends on September 30, 2024. This report revealed that due to strong demand for HBM, the company's third-quarter profits and revenues reached record highs.

SK Hynix remarked, "The demand for AI-storage solutions, primarily from data center clients, continues to be robust

The company is responding to this trend by expanding sales of high-value products like HBM and eSSD, marking the largest quarterly income since the company was foundedSpecifically, HBM sales surged, with a quarter-on-quarter growth exceeding 70% and a year-on-year rise surpassing 330%."

Though SK Hynix has not disclosed the specific revenue sources for its HBM segment, it is evident that the company, with its top-tier production capabilities and technological expertise, has successfully secured HBM requirements from tech giants like Intel and AMDThe demand scale from these companies is substantial, possibly forming a critical pillar for SK Hynix's HBM revenues.

However, part of SK Hynix's HBM revenue also includes contributions from the Chinese mainland market

While its proportion is relatively unclear, it undeniably holds significant influence and impact within the overall revenue structure.

As the U.Samplifies its export controls, Chinese development of AI-related memory chips increasingly pivots toward Samsung and SK Hynix, especially given concerns around U.Srestrictions on HBM chip exportsChinese manufacturers are now stockpiling HBM products, further aiding the revenue growth for both Samsung and SK Hynix within China.

In the first half of this year, SK Hynix recorded that sales in China and the U.Saccounted for 29.8% and 55.4% of its overall sales, respectively, summing up to 85.2% of its total revenue

Notably, revenue numbers from China soared to 86.061 trillion KRW (approximately 6.43 billion USD), more than double last year’s figures of 38.8 trillion KRW; while sales from the U.Sreached 159.787 trillion KRW (around 11.94 billion USD), nearing triple last year's 54.7 trillion KRW.

This growth is attributed to numerous factors, including rising memory chip prices and robust demand for high-performance storage products such as HBM3E and enterprise SSDs.

Should the HBM embargo come into effect, it would complicate SK Hynix’s business expansion within the Chinese market, resulting in the forfeiture of some potential revenue growth opportunities.

At the same time, another HBM leader—Samsung, may face even greater challenges ahead.

Samsung: Facing Severe Damage

Initially, as mentioned earlier, SK Hynix has concentrated substantial efforts on landing HBM orders from international buyers, hence, its revenue from the Chinese mainland remains relatively minimal.

Additionally, among the three giants in the storage sector, the third one, Micron, has been unable to conduct sales in China due to specific causes (to be elaborated later).

This situation has resulted in Samsung predominantly capturing a substantial portion of the HBM market in mainland China.

With the implementation of these export restrictions, Samsung’s HBM operations in mainland China will undoubtedly encounter unprecedented challenges

Being unable to sell HBM products in China would not only severely affect Samsung's performance metrics but also risk forfeiting their market position due to cascading impacts arising from the localization efforts.

Financial reports for the first half of 2024 indicate that Samsung Electronics' sales in China have surged, reaching 32.3 trillion KRW compared to last year’s 17.8 trillion KRW, marking an increase of approximately 181%. This boosted the Chinese market’s share in Samsung's overall revenue from 21.74% to 30.81%.

Micron: Minimal Impact

The third player that could not undertake HBM sales in the Chinese market is Micron, for certain reasons as previously noted.

Micron's anticipated impacts appear to be the least compared to those of the other two

Yet, from a global market perspective, if both Samsung and SK Hynix face constraints in China, it could provoke a shift in the global storage market landscape, as the two companies may redirect their focus to other markets, indirectly affecting Micron's global revenues.

Companies like Samsung and SK Hynix may find themselves constrained by new regulations due to their dependence on U.SEDA firms such as Synopsys and Cadence for design software, and American semiconductor equipment giants like Applied Materials for manufacturing processes.

Reports have previously indicated that the Korean Ministry of Trade, Industry, and Energy plans to engage in negotiations with the U.S

regarding these potential new export limitations on HBM chips.

It has been stated by Minister Jeong In-kyu that, "Given that two out of the three companies producing HBM chips are Korean firms, (the export restrictions) will significantly impact usWithout any official statement from (the U.S.), I cannot comment further.” Nevertheless, he added that the U.Swould cooperate with Korea to alleviate concerns regarding Korean enterprises.

Challenges in HBM Manufacturing

Key challenges in HBM production include wafer-level advanced packaging technology, encompassing techniques such as TSV (Through Silicon Via), micro bumping, and stacked bonding.

HBM initially employs TSV and micro bumping techniques to create vias and bumps at the wafer level

Subsequently, through processes such as TC-NCF, MR-MUF, and Hybrid Bonding, stacked bonding is achieved, which connects to the logic diePackaging companies then utilize CoWoS (Chip-on-Wafer-on-Substrate) technology to form a relationship between HBM and SoC (System on Chip) using an interposer silicon layer, ultimately connecting to the substrate.

Among these, the cost contribution of TSV in HBM manufacturing is the highest, directly affecting yield ratesTSV presents advantages over traditional interconnection methods that typically employ a combination of metal wiring and wire bonding techniques, which have long signal transmission distances and high signal loss rates, diminishing the reliability of channels and circuitsFurthermore, conventional interconnect wiring is often more complex, raising interference risks between signals and devices.

Additionally, planar wiring occupies certain areas of the chip’s usage

In contrast to traditional methods, TSV offers a vertical interconnection method, which significantly enhances chip integration, minimizes space wastage, and augments stacking densityAlso, the vertical interconnect system greatly boosts signal transmission efficiency and reliabilityThe use of silicon vias has made chip integration, miniaturization, and low power consumption ventures more feasible.

HBM primarily utilizes the micro bumping process to create micro bumpsMicro bumps are among the foundational techniques in advanced packagingTheir main purpose is to facilitate electrical signal interconnection and mechanical support; almost all advanced packaging requires micro bump technology, with the bump preparation being the critical stepHBM utilizes electroplating to produce micro bumps, which can be made via various methods including evaporation, plating, chemical deposition, mechanical balling, solder paste printing, and ball placement

Currently, the DRAM chips of HBM are interconnected primarily through micro bumps, which are copper pillar bumps formed via electroplating.

DRAM production capacity stands as another pivotal restrictive factorAlthough some domestic enterprises possess certain foundational technologies for DRAM and advanced packaging, the DRAM processing methods they utilize are evidently lagging behind international standardsAdditionally, significant gaps still exist in implementing advanced packaging processes like TSV, micro-bumping, and stacked bonding on DRAM.

Domestic Vendors: Accelerating the Pursuit

HBM, being the preferred high bandwidth memory technology in the current AI landscape, witnessed its market growth doubling in 2023 to approach around $4.4 billion

According to data released by Digitimes, China’s demand for HBM accounted for nearly 7% of global demandConsequently, it is estimated that the Chinese HBM market reached approximately $310 million in 2023, and futures industry research anticipates this industry will grow to $1.2 billion by 2029.

As the push for domestic production progresses, China’s need for self-sufficient HBM technology is amplifyingReports in June hinted that suppliers of IC (integrated circuit) materials and equipment are witnessing strong demand for HBM products from Chinese enterprises.

In the current landscape, various enterprises have successfully penetrated the HBM supply chain in China, including material companies, packaging firms, equipment manufacturers, and agents.

Among materials, Flextar has indicated that epoxy molding compounds are one of the essential materials needed in the manufacturing process of HBM chips

The MUF material varies based on attributes and techniques; presently, the company’s MUF products include liquid packaging materials (LMC) and granular packaging materials (GMC). The liquid materials (LMC) have been mass-produced and generated minimal sales, while the granule filling materials (GMC) are still in development and sampling stages.

Advanced packaging companies like JCET, Tongfu Microelectronics, and Sensing Micro have now developed technologies suitable for HBM production, including TSV silicon viasJCET indicated during investor interactions that their XDFOI high-density fan-out package solutions are also applicable to HBM’s Chip-to-Wafer and Chip-to-Chip TSV stacked applicationsFollowing the establishment of the advanced packaging production lines in Nantong, Tongfu Microelectronics stated they would become a leading domestic 2.5D/3D advanced packaging development and production base, enabling breakthroughs in high-performance packaging technology for HBM.

While domestic enterprises have equipped themselves with advanced packaging technologies involving TSV, bumping, and stacking utilized in HBM, there still remains a need for accumulating production experiences to deliver commercial mass production.

In the broader supply chain, the chip design firm Guoxin Technology noted that they are in collaboration with partners to conduct verification work based on advanced techniques, focusing on high-performance chip interconnection IP technologies including HBM.

China’s Unigroup Guowei has revealed that their HBM products are currently in the research and development phase, targeting special integrated circuits.

In this context, domestic memory vendors are resolutely dedicating themselves to technical reserves and breakthroughs.

Overall, the HBM restrictions pose both challenges and opportunities for China