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Japan measures threaten chips, displays

Korean makers of the products may face delays of key materials
July 02,2019
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Visitors look at some of Samsung Electronics’ semiconductors and display products that are exhibited at the company’s D’light store in Seocho-dong in Gangnam, southern Seoul, on Monday. [NEWS1]
Korea’s semiconductor and display industries could face difficulties manufacturing after Japan announced measures to strengthen export procedures for materials used by Korean companies.

On Monday, Japan said that it would make sales more difficult to Korea of fluorinated polyimide, used for displays, and hydrogen fluoride - or etching gas - and photoresists, essential for semiconductor production. It will also remove Korea from its list of export partners receiving preferential treatment.

The measures, a response to the Korean court ruling related to wartime forced labor, could delay the supply of three key materials for months and could take a toll on the export and production of chips and displays.

“The three materials are all highly dependent on Japan,” said Lee Seung-woo, an analyst at Eugene Investment & Securities in a report. “If the measures become drawn out, losses to the local semiconductor and display industries will be inevitable.”

“Photoresists and etching gas are also used for LCD manufacturing,” explained an industry source. “It is true that there is a great reliance on Japan and measures are being taken to find an alternative source.”

Japan holds a tight grip in the global market for the materials.

According to a report by NH Investment and Securities, Japanese companies account for over 90 percent of market share of fluorinated polyimide and photoresists. Japan also has a 70-percent market share in hydrogen fluoride.

While companies in Korea do produce such materials, they are unlikely to make up for the disruption of the Japanese supply.

“Local companies produce materials of lower quality and also work together with Japanese companies, so finding a complete replacement is difficult,” added NH Investment and Securities.

The move weighs on industries already challenged.

Amid recent global trade tensions, Korea’s semiconductor exports fell 22.5 percent in the first half of this year compared to the same period a year earlier, while display exports declined 12.7 percent.

Local industries remained cautious about the latest measures.

“It may be possible to respond to the situation with the supply we have right now for one or two months,” said a semiconductor industry source, who declined to be identified. “If the export approval process becomes longer than expected, there are concerns about semiconductor production.”

“As it’s not an export ban but making the export process more difficult, we are closely monitoring the situation.”

Meanwhile, analysts see a silver lining as the restriction could reduce the inventory glut amid an industry slowdown and wean the country off its dependence on Japanese makers.

“Currently, there is an oversupply of semiconductors and displays,” said Kim Yang-jae, an analyst at KTB Investment & Securities. “The measures could lead to using up the oversupply from domestic companies.

“Local manufacturers and the materials industry have enough supply to weather Japan’s import procedure period.”

Kim added that the measures would not benefit Japanese semiconductor and display companies due to their lack of competitiveness in the global market.

“The export measure by Japan will likely be a turning point for Korea’s IT materials industry that has, until now, relied on overseas supply and accelerate homegrown products,” said a report from KB Securities. “Samsung Electronics, SK Hynix, Samsung Display and Samsung SDI are expected to start making key components locally from 2020.”

Korea is one of the largest markets for materials, with the memory semiconductor industry’s global market share at 53 percent, according to KTB Investment & Securities.

Semiconductor shares were unshaken by Japan’s announcement.

BY CHAE YUN-HWAN AND JIN MIN-JI [chae.yunhwan@joongang.co.kr]