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Emerging tensions between Japan and South Korea are threatening Samsung Electronics Co.'s chip makers at SK Hynix Inc., disrupting a carefully choreographed global supply chain by stifling memory chip production and cracking. other essential components for widely used devices.
While the world is focusing on Donald Trump's campaign to contain Huawei Technologies Co. and China's ambitions, a dispute between Beijing's two wealthiest neighbors also has considerable implications for the production of everything from iPhones to Apple Inc. to Dell Technologies Inc.'s notebooks. Industry is now trying to measure spin-offs after Japan – citing old, unresolved tensions – has imposed restrictive restrictions on exports to the United States. Korea's three classes of materials crucial for the production of semiconductors and advanced displays.
This maneuver, the most recent manifestation of decades of wartime tension, puts Samsung in the center of a storm storm and once again highlights the global nature of the production machine that makes most gadgets in the world. Not only does it manufacture memory chips, but Samsung is also the largest smartphone maker.
The largest Korean company lost 2.7% on Monday and lost about 16 trillion won ($ 13 billion) this month, while Hynix lost 1.5% and lost $ 1.5 trillion won. The two companies – which together account for 60% of the memory chip production capacity in the world – declined to comment.
Although inventory varies from one material to another, Samsung's stock offer is less than a month on average, according to people familiar with the subject. Samsung and SK Hynix are actively looking for alternatives, they said, asking not to be identified as speaking of a sensitive political issue. The two Korean giants have assured their customers that they will try to minimize their impact on production, but Samsung, for example, is gearing up for possible production cuts or even production shutdowns if the situation persisted, said the citizens.
That's why the Korean conglomerate's de facto leader, Jay Y. Lee, flew to Tokyo this weekend for emergency meetings with Japanese suppliers. It is unclear how much the impact could be felt – it all depends on whether Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-In can reach a compromise. But in the worst case, flexible displays for iPhone and other mobile devices may crackle, while memory chips used in everything from HP Inc. laptops to Amazon.com Inc. servers could shrink.
"This is an unprecedented event," said Jongjun Won, President and CEO of Lime Asset Management Co. "If it's lucky, the chip industry could adjust its inventory. There could be a happy ending if Japan's problem is resolved in the meantime. However, confusion between politics and business makes it difficult to find a solution. "
The conflict has spilled over on social media. South Koreans, unhappy with the Japanese movement, have turned to Instagram and other platforms to call for a boycott of Japanese travel and consumer goods.
Japan is targeting three materials that, although little known outside the industry, are of utmost importance for the production of electronic products. The government says it also has sensitive military applications. In the technology sector, fluorinated polyimide is needed for the production of foldable panels, such as those used in the Samsung Galaxy Fold, among others. Photoresists are essential for the manufacture of chips, while hydrogen fluoride is needed for both chip production and display.
Finding substitutes will not be easy: Korean companies now depend on Japan for more than 90% of all fluorinated polyimide and are resistant to it, as well as for 44% of its hydrogen fluoride needs, according to Societe Generale. Ironically, if the dispute continues, the Japanese suppliers of these chemicals – companies of JSR Corp. Shin-Etsu Chemical Co., which is a weak but inextricable link in the chain – could also suffer the consequences.
"This could be a negative factor for the global economy," said Huh Nam-Kwon, CEO of Shinyoung Asset Management Co., by phone. "Just wait and see how the situation evolves. A single word from Abe could decide anything. It's hard to predict.
The biggest impact will be on Samsung's next-generation products: folding screens and chips with a line width of 7 nanometers or less that are manufactured using the so-called "extreme ultraviolet" (EUV) process. This jeopardizes Samsung's explicit goal of investing $ 116 billion to become the number 1 in the logic chip market by 2030. Without Japanese materials, Samsung could be paralyzed in its foundry development efforts and manufacturing advanced memory chips.
Their rivals could intervene to fill this gap in the meantime. Micron Technology Inc., the only other major memory chip manufacturer, will benefit. Taiwan Semiconductor Manufacturing Co. could further increase its lead over Samsung in custom chips, vying for Samsung customers such as Qualcomm Inc. and Nvidia Corp.
"Both sides will have a huge impact," said Heungchong Kim, senior researcher at the Korea Institute of International Economic Policy. "These materials can not be replaced in a short time. It becomes a strange situation. "
The situation could worsen if Japan withdraws South Korea from the so-called "white list" of countries considered as not posing any risk of weapons proliferation, a decision that Tokyo is currently considering.
Japan and Korea have traditionally turned to the United States to mediate their clashes, but this time it is unclear whether Trump wants to get into the fray. The basic mechanics of the restrictions aggravate the situation. Although it is not a prohibition in itself, potential exporters of the products concerned must obtain a license from the government. It could take up to 90 days – an eternity for a rapidly changing industry.
Industry analysts also disagree on which companies will be hardest hit, in part because some Japanese companies either have localized production in South Korea or facilities in countries such as China.
In Japan, Sumitomo Chemical Co. is a key polyimide supplier, according to WitsView, based in Taipei, and Isaiah Research – but company representatives deny the opposite. David Hsieh, an analyst at IHS Markit, said that in addition to Sumitomo Chemical, SKC – such as Hynix, a subsidiary of the giant SK Group – or Kolon Industries, are viable local substitutes.
JSR is a major producer of resistors, while the global hydrogen fluoride market is dominated by Kanto Denka Kogyo Co., Showa Denko KK and Daikin Industries Ltd., according to Isaiah Research of Taipei. The manufacturer Tokyo Ohka Kogyo Co. said that it already catered to South Korean customers locally. Daikin said the restrictions would have no impact on hydrogen fluoride because the materials are made in China, while Morita Chemical Industries Co. is building a plant that will go online next year. .
"Even if high stocks of semiconductors could provide a certain margin of safety, the time may not be on the side of Korea," said Citigroup economists Jin-Wook Kim and Johanna Chua recently. "The replacement of Korean chips would disrupt the supply chain, as the creation of alternative sources requires specific technology and considerable investment."
(Updates of the company's fourth paragraph.)
– With the help of Heejin Kim, Yuki Furukawa and Isabel Reynolds.
To contact the reporters on this story: Sohee Kim in Seoul at [email protected], Debby Wu in Taipei at [email protected], Pavel Alpeyev in Tokyo at [email protected]
To contact the editors in charge of this story: Tom Giles at [email protected], Edwin Chan, Colum Murphy
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