Semiconductor Components - Impact of Component Restrictions in Japan-South Korea Dispute
Background: Japan began restricting key technology exports to South Korea by placing key items under tighter export control, effective July 4, in a dispute stemming from disagreements about reparations to World War II comfort women. In removing South Korea from its Preferred Trade Partner Countries list on Aug. 2, Japan said it would subject another 800 export items -- manufacturing equipment, robotics, IT, telecommunications, integrated circuit products -- to more thorough export procedures, effective Aug. 28.
Impact for AMOLED Display, Semiconductor Fabrication
Although Samsung Electronics Co. Ltd. (005930 KS), LG Display Co. Ltd. (034220 KS) and SK Hynix Inc.’s (000660 KS) rely on Japanese suppliers of three crucial materials for semiconductor and display production, sources said operations have not yet been interrupted by the tighter controls, which took effect for these materials July 4. “I am hearing that Japan is approving all the shipments to go through and that the fight between Korea and Japan looks a lot worse than it really is,” said an Asian OEM source, who pointed out that the exports are not banned outright.
The three companies buy Japanese-made photoresists used for semiconductor wafer circuit patterns, hydrogen fluoride used for semiconductor etching, and fluorinated polyimides used for AMOLED display production. One source said Japan supplies around 70%-90% of these materials to South Korean companies. Another said, “The Chinese cannot supply the same materials in such high quality and volume.” The Japanese suppliers include JSR Corp. (4185 JP), Tokyo Ohka Kyogo (4186 JP), Shin-Etsu Chemical Co. Ltd. (4063 JP), Stella Chemifa Corp. (4109 JP), Showa Denko KK (4004 JP) and Kanto Denka Kyogo Co. Ltd. (4047 JP).
Another source said component buyers do not know how many months of inventory Samsung has of photoresists, hydrogen fluoride and fluorinated polyimides to compensate for potentially slower exports from Japan. “It’s hard to know how much stock the [South] Koreans have in inventory, but so far supplies to end customers are not affected,” the source said. However, he added, “If this gets worse and both sides won’t negotiate, it might cause shortages for DRAM and NAND and OLED in 4Q or 1Q.”
A large Taiwan memory distributor said an increase in Samsung NAND flash memory prices has been caused by a disruption of operations at a Toshiba Memory Corp. (6502 JP) stemming from a power outage in late June, not by the Japanese export restrictions on photoresists and hydrogen fluoride. The source expects further NAND price increases for the next quarter. “Samsung and SK Hynix might use the Japan trade war as an excuse to raise more prices in the fourth quarter,” he said.
A smartphone supply chain source said Apple Inc. relies on Samsung for most of the AMOLED displays for the iPhones. He said there is “very small chance” of an AMOLED shortage for the new iPhone because Apple normally requires its suppliers to stockpile adequate supply for production. “There’s no other options for AMOLED [than Samsung]. BOE [Technology Group Co. Ltd. (000725 CH)] can’t be a replacement because of yield and capacity limitations,” he said.
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