South Korean companies produce 70% of the world’s DRAM, about a half of 3D NAND, and a significant share of OLED and LCD displays on the planet. Meanwhile, Japanese suppliers make 70% – 90% of three materials crucially required for manufacturing of the said components. As the two countries have a multi-decade-long dispute over compensations, Japan recently implemented new export rules that could disrupt supply of the important materials to South Korea, which in turn could hurt supply of DRAM, NAND, and various types of displays.
Japan-based JSR, Showa Denko (SDK), and Shin-Etsu Chemical control 70% – 90% of the global supply of polyimides (used both for LCDs and OLEDs), photoresists, and high-purity hydrogen fluoride (used to make chips, such as LSI, DRAM and NAND devices). Starting July 4, Japanese producers must get an approval for individual exports of the aforementioned chemicals to South Korea. Export reviews may take up to three months, whereas South Korean companies typically only keep one to two months’ worth of materials in stock.
If South Korean companies cannot procure enough chemicals from their Japanese partners or their competitors in other countries, they will have to halt production, which will have a drastic effect on global supply of DRAM, 3D NAND, chips by Samsung Foundry, LCDs, and OLEDs.
According to Nikkei and Reuters, SK Hynix only has enough materials to keep production going in the short-term future, or for the next couple of months. Samsung is reportedly trying to deal with the situation, but nothing is clear at this point. Both South Korean giants have manufacturing plants in China, which could partially offset a potential disruption of supplies by domestic fabs. Meanwhile, LG Display and Samsung Display only make their products in South Korea and have to source fluorinated polyamide from Japan (despite the fact that LG controls LG Chem, the largest chemical company in South Korea).
The Empire of Japan colonized the Korean peninsula from 1910 to 1945, which is a reason of conflict between Japan and the two Koreas. During the WWII, Japan used free South Korean labor at many of its factories and now survivors demand compensations. Late last year South Korean court ordered Japan’s Nippon Steel & Sumitomo Metal as well as Mitsubishi Heavy Industries to pay compensations to South Korean plaintiffs, verdicts criticized by Japan as ‘unthinkable’ because the issue was settled in 1965.
In additions to new export controls, Japan reportedly plans to exclude South Korea from the whitelist of 27 friendly countries. If this happens, export of all items that can be potentially used for military applications will require appropriate government approvals, which will further slowdown business between the two countries.
Components made in South Korea are then used by various companies across the world, including Apple, Dell, HP, Lenovo, Panasonic, Sony, and so on. As a result, if supply is indeed disrupted, Japanese companies will be hurt too.
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