Japan-South Korea trade spat threatens global tech market

TOKYO: 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.

South Korean President Moon Jae-in has called

the situation an “unprecedented emergency” and told business leaders to prepare
for a drawn-out crisis.

On Thursday, the country’s ruling party called

for an extra budget of 300 billion won ($250 million) to help local firms
survive the upheaval, more than double what the prime minister had asked for a
day earlier.

With Japan so far refusing to negotiate, the

news is bleak for top market players Samsung Electronics and SK Hynix.

The two firms supply tech titans Apple, Huawei

and Amazon, and together account for almost two-thirds of the world chip
market, according to the Hana Institute of Finance in Seoul.

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.

“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” 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.

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.”