Analysis: S.Korea govt, Samsung team up for self-sufficiency after Japan export curbs on chip material

Hoya

14/09/2020 02:00

* Samsung sells device to state testing centre at fraction
of cost
    * "This would never have been imaginable in the past" -
professor
    * Long way to go to become self-reliant in chip material
-experts
    * Govt to invest $4.2 bln by 2022 to diversify supply
sources

    By Joyce Lee and Hyunjoo Jin
    DAEJEON, South Korea, Sept 14 (Reuters) - When the South
Korea government unveiled an expanded semiconductor material
testing facility last month, the centrepiece was a towering
white machine given by Samsung Electronics  005930.KS  at a
fraction of its market price.
    The facility, aimed at motivating local suppliers to make
and test sophisticated chipmaking materials like photoresist,
comes as South Korea pushes for self-sufficiency after Japan
last year imposed export curbs https://www.reuters.com/article/us-southkorea-japan-laborers-chip-analys/south-korean-chip-giants-face-strangling-from-japanese-export-curbs-idUSKCN1UR3LZ
 on high-tech chip materials.
    While industry sources warn Korea has a long way to go to
achieve this, the need for self-reliance in chip technology has
become more critical with the outbreak of the coronavirus
pandemic and U.S.-China tensions threatening to accelerate
supply chain shifts.
    Large chip-making companies like Samsung would previously
source the best components at the cheapest price "no matter
where the material was from", said Lee Jo-won, president of the
National Nanofab Center, home to the testing facility.
    "But due to Japan's export curbs and COVID-19, they have
begun to ... foster local suppliers and to create a system where
they can be supplied without disruptions," Lee told Reuters at
the centre in Daejeon city, 150 km (93.21 miles) south of Seoul.
    The equipment that Samsung sold to the lab, the ArF
immersion lithography machine made by ASML  ASML.AS , will help
local suppliers test chip material. 
    The machine, which the world's top memory-chip maker had
been using in its production line, costs up to 100 billion won 
($84 million) when new, experts said. 
    A National Nanofab Center official said about 20 billion won
had been budgeted to buy and refurbish the machine, without
giving details on the final price.
    "This would never have been imaginable in the past, to
provide such an expensive device to a public lab," said Lee
Jong-ho, a professor at Seoul National University. 
    "It took a decision from pretty high up."
    
    SHORING UP BUSINESSES 
    Samsung has decided to invest in firms that need cooperation
to develop next-generation chip technologies, a company
spokesman told Reuters in an email.
    It recently invested a total of about $113 billion won in
two local makers of chip components and testing equipment, S&S
Tech Corp  101490.KQ  and YIK Corp  232140.KQ , its first such
investments in three years.
    S&S makes mask blanks, a chipmaking component that is
currently more than 90% sourced from Japanese firms like Hoya
 7741.T  but not included in export curbs. 
    "Samsung seems to be securing various options so they're not
too dependent on any one source", said an official at a
Samsung-backed chip material supplier. 
    With no sign of a thaw in South Korea-Japan tensions, rooted
in wartime history https://www.reuters.com/article/us-southkorea-japan-history-explainer/explainer-history-islets-and-rulings-behind-tension-between-s-korea-and-japan-idUSKBN1XW19K,
 Seoul is pushing to diversify supply sources of 100 items it
still mainly gets from Japan and has pledged to invest 5
trillion won by 2022 to that end.  urn:newsml:reuters.com:*:nL4N2G01FW 
    South Korea has already diversified sourcing for the three
materials targeted by Japan in the curbs last year https://www.reuters.com/article/us-southkorea-japan-laborers-factbox/factbox-the-high-tech-materials-at-the-heart-of-a-japan-south-korea-row-idUSKCN1TX12I
 and now gets supplies locally and from Belgium, Taiwan and
China.   
 
    SCEPTICISM 
    But there is scepticism about whether it makes economic
sense for Korea's small domestic chip material market to pour
money into developing sophisticated technology in which Japan
has a competitive edge, industry experts said.
    Also, Seoul wants big corporations to use local suppliers,
"but this is not an easy option unless quality is guaranteed",
said Kwon Hyeok-min, leader of an industrial policy team at
Korean business lobby group, Federation of Korean Industries.
    Samsung, SK Hynix  000660.KS  and LG Display  034220.KS 
supply chips and displays to tech giants like Apple  AAPL.O ,
Qualcomm  QCOM.O  and Huawei  HWT.UL . 
    The chip sector accounts for 20% of exports for South Korea,
Asia's fourth-largest economy. 
    It will take time to localise high-tech materials like EUV
photoresist, former Hynix engineer Kim Sang-yong said. Japan
accounts for 90% of the global photoresist production. 
    Photoresists, which Japan targeted in its curbs that it
later partially reversed https://www.reuters.com/article/uk-southkorea-japan/japan-reversed-export-curbs-for-chip-material-to-south-korea-trade-ministry-official-idUSKBN1YO11L,
 are thin layers of material used to transfer circuit patterns
onto semiconductor wafers.
    Kim, now a professor at Korea Polytechnics University, also
cautioned South Korea could be hit hard should Japan expand
curbs to chipmaking equipment. 
    Out of South Korea's 100 import items heavily dependent on
Japan, 14 are semiconductor-making equipment that are not
subject to any restrictions, according to the Seoul-based
Institute for International Trade.
    If Japan extends curbs to these 14, South Korea's "chip
production will stop", Kim said. 
    "What is more vulnerable than materials are the equipment
and parts that manufacture semiconductors."  
 ($1 = 1,187.3500 won)

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S.Korea imports of Japan's export curb materials S.Korea imports
of Japan's export curb materials    https://tmsnrt.rs/35of8AM
S.Korea imports of Japan's export curb materials S.Korea imports
of Japan's export curb materials    https://tmsnrt.rs/3ijH0JG
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 (Reporting by Joyce Lee and Hyunjoo Jin; Additional reporting
by Makiko Yamazaki in Tokyo; Editing by Himani Sarkar)
 ((jungyoon.lee@tr.com; +82 2 6936 1467;))