The recent decision of Japan to put a cap on the exports to South Korea of high-tech materials used in smartphone displays and chips reflects how the third largest economy of the world dominates the global supply chain of such a crucial part of the technology world. The decision and the uproar over it also highlights the role of and importance of Japan in the area of specialized chip components despite South Korea is the market leader in the chip making industry since many years now.

Japan has curbed export of three materials. One of them is fluorinated polyimides which is a critical component of smartphone display screens. Another is photoresists tah helps in the transfer of circuit patterns on to semiconductor wafers. And the third is hydrogen fluoride which has importance as an etching gas during the manufacturing process of chips.

According to recent reports published in the Japanese media, about 90 per cent of the total global production of fluorinated polyimides and about 70 per cent of the etching gas is made in Japan. And according to a government report, about 90 per cent of total global production of photoresists is accounted for by Japan. Therefore, it is very difficult to locate and arrange for alternative sources of supply of the materials for South Korean chipmakers.

According to Korean industry data, in the first five months of this year, $144 million of the three materials was imported from Japan by South Korea which is about 94 per cent of the total fluorinated polyimides, 44 per cent of the etching glass and 92 per cent of the photoresist that was imported into the country.

Chipmakers would have to try to build stockpiles, said reports quoting a source at one of South Korea’s top memory chipmakers. This curb on exports by Japan is expected to hit Korean tech giants such as Samsung Electronics, SK Hynix and LG Display.

Analysts say that Japanese suppliers include JSR, Tokyo Ohka Kogyo Shin-Etsu Chemical and Stella Chemifa. Other suppliers include Showa Denko KK and Kanto Denka Kogyo.

While sourcing some of hydrogen fluoride from China, supply of most of the materials to South Korean chip giants Samsung Electronics and SK Hynix are made from Japan. According to experts, South Korean companies have to stockpile the materials within the next four months.

“The materials are hard to build stockpiles of because photoresists, for example, can deteriorate over time,” said Nomura analyst Shigeki Okazaki. He added that it is also hard to store etching gas in high volumes.

According to reports quoting Japanese government officials, the curb would include suspension of preferential treatment for shipments to South Korea carrying these three materials and exporters would be required to get special permission every time a shipment is to be sent.

According to Park Jea-gun, a semiconductor engineering expert who heads the Korean Society of Semiconductor & Display Technology, chipmakers in South Korea now are trying to arrange for the materials from alternative sources such as from China or Taiwan which are outside of the jurisdiction of Japan.

(Adapted from Reuters.com)

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