BCN-13, 14, 15 Japan-S. Korea trade spat threatens global tech market

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Japan-S. Korea trade spat threatens global tech market

SEOUL, July 11, 2019 (BSS/AFP) – A simmering diplomatic row with Japan is
threatening South Korea’s output of components that drive smartphones and
computer displays, which analysts say could batter the global tech market and
hike prices for consumers.

Tokyo last week said it would restrict exports of three chemicals vital to
South Korea’s world-leading chip and smartphone industry in an escalation of
a decades-long dispute over Japanese forced labour during World War II.

And with the issue showing no sign of ending any time soon, there are
worries it could also delay the rollout of 5G technology and futuristic
folding screens.

“If this situation persists, there may be reductions in production, which
will drive up memory (chip) prices and certainly drive up end-product prices
in turn,” said Avril Wu, senior research director at Taipei-based market
intelligence firm TrendForce.

While South Korea holds stockpiles, shortages could set in after three
months, she told AFP.

On Wednesday, South Korean President Moon Jae-in called the situation an
“unprecedented emergency” and told business leaders to prepare for a drawn-
out crisis.

With Japan so far refusing to negotiate, the news is bleak for top market
players Samsung Electronics and SK Hynix.

Between them the two firms account for almost two-thirds of the world chip
market, according to the Hana Institute of Finance in Seoul, while they also
supply tech titans including Apple, Huawei and Amazon.

– ‘Emergency’ situation –

“South Korea is the world leader when it comes to chip-making, and Japan is
the world leader in the manufacturing of the key materials for chip-making,”
said Ahn Ki-hyun, vice-president of the Korea Semiconductor Industry
Association.

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“With this trade row, Japan and South Korea are both losing the best
partners. And neither of them will find good alternatives for a very long
time,” he added.

“Ultimately, this will bring a stagnation or regression of the world’s most
cutting-edge technology. The price of gadgets may rise, as chips will likely
be in short supply.”

Tech companies are already under pressure from a weakening global outlook,
while the chip sector is particularly suffering from weak demand.

Japan’s new restrictions also apply to the transfer of manufacturing
technologies as well as the three chemicals, removing them from a list that
effectively allowed expedited shipments.

It means exporters will now have to apply for permission for every batch
they send to South Korea — a process that can take up to 90 days each time.

Len Jelinek, executive director of semiconductor research at IHS Markit,
warned any reduction or elimination in the availability of the materials
would “significantly impede” chip production.

“Because of the volume of chemicals required within the semiconductor
manufacturing process, it is unlikely that the major chip suppliers will be
able to find suitable quantities from suppliers outside of Japan,” he said.

Two of the chemicals targeted, hydrogen fluoride gas and photoresists, are
essential to making memory chips, while the third chemical, fluorinated
polyimide, is used for high-spec TV screens and smartphone displays,
including in hotly anticipated folding models.

Japan reportedly produces some 90 percent of the world’s fluorinated
polyimide, making it difficult for Korean companies to find alternatives
elsewhere.

A Samsung official told AFP the firm was reviewing measures “to minimise
further impact on our production” but declined to comment further.

Another key manufacturer LG Display said it had been testing fluorinated
polyimide made in China and Taiwan to see if it can replace Japanese supplies
if needed.

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– Delay to 5G? –

End-products that could be affected by Tokyo’s restrictions include
Samsung’s Galaxy Fold — a top-end, foldable 5G smartphone that its makers
hope will revive a sector struggling for new innovations.

5G networks offer radically quicker transfers of data and could enhance
technologies such as autonomous driving, remote medical diagnosis and mobile
payments.

In April, South Korea became the first country to launch nationwide 5G
services, and in the same month Samsung rolled out its Galaxy S10 5G, the
world’s first available smartphone with the technology built into it.

The smartphone giant has spent nearly eight years developing the Fold,
whose planned release earlier this year was delayed because of screen
problems.

But Park Jea-gun, an electronic engineering professor at Hanyang University
in Seoul, warned that if the trade row continues it could impede such
innovation.

“Reductions in chip production will slow everything down — including
internet-based businesses that seek to utilise 5G’s significantly faster
download speed, and solid 5G gadgets. And this will hurt the world’s economy
in the long run.”

BSS/AFP/HR/1130