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Korean Companies Set to Reduce Dependence on Imports from Japan
[Special Report 4] Copying with Japan's Export Restrictions
Korean Companies Set to Reduce Dependence on Imports from Japan
  • By Kim Eun-jin
  • August 1, 2019, 16:30
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A researcher at a South Korean semiconductor manufacturer tests etching gases from non-Japanese suppliers.
A researcher at a South Korean semiconductor manufacturer tests etching gases from non-Japanese suppliers.

Japan’s export restrictions cover photoresists, hydrogen fluoride and fluorine polyimide. Among them, hydrogen fluoride or etching gas from Japan accounts for 43.9 percent of South Korea’s total hydrogen fluoride imports, and South Korea’s dependence on Japan is close to 100 percent when it comes to high-purity hydrogen fluoride for use in semiconductor micro fabrication. In particular, the Japanese government is claiming that the South Korean government let North Korea get hydrogen fluoride.

Although South Korean semiconductor and display manufacturers are trying to diversify their material supply sources amid the Japanese government’s export restrictions, their concerns still remain in that it is difficult to actually obtain a substitute suitable for mass production processes.

“When it comes to etching gases, we need to test their suitability for our products regardless of their purities, and the problem is that the test takes at least three months without any guarantee of success,” Samsung Electronics explained, adding, “The gas is diluted for each semiconductor manufacturing process and the related concentration and mixing ratio are Japanese companies’ trade secrets.” It continued to say, “They are supplying materials in a highly customized way and the South Korean semiconductor and display manufacturers’ dependence on Japanese suppliers is because the former as of now cannot catch up with the latter having more than 100 years of technological expertise and know-how.

“Different semiconductor manufacturing processes require different hydrogen fluoride molecule sizes and purity levels, and South Korean companies are still incapable of producing hydrogen fluoride suitable for our processes,” SK Group chairman Chey Tae-won explained at the Jeju Forum the Korea Chamber of Commerce and Industry hosted on July 18, responding to the remark made by SMEs and Startups Minister Park Young-sun who pointed out that South Korean small firms can produce and supply hydrogen fluoride and yet their larger counterparts are refusing to purchase their hydrogen fluoride.

Some experts assert that large Korean semiconductor producers’ lack of investment in the material industry hinders localization of key materials needed to produce semiconductors. However, Korean semiconductor producers have actually been active in supporting the localization efforts of their small and medium-sized partner companies.

A debate has flared up regarding Korea’s slow localization of major materials in the aftermath of Japan’s restrictions on semiconductor material exports. Earlier, the Korean Society on the Advancement of the Korean Semiconductor Industry Structure blamed Korea’s poor material localization on tougher environmental regulations and big Korean chipmakers’ reluctance to give technical support to material companies.

However, due to the semiconductor industry’s sensitivity to technical security, Korean semiconductor makers were partnering with individual companies and supporting them by way of equity investment rather than providing technical support industry-wide, the Korean semiconductor industry explained.

In fact, Samsung Electronics has invested in semiconductor material companies such as Dongjin Semichem and SoulBrain and is pursuing joint technology development with them. The two companies are producing the items regulated by Japan. Dongjin Semichem produces photoresists while SoulBrain supplies etching gas (hydrogen fluoride).

Samsung Electronics held a 4.8 percent stake in each of the two companies as of end-March. Samsung Electronics is investing not only in material companies but in equipment makers such as SEMES, a subsidiary of Samsung Electronics, and Wonik IPS.

“Since material technology constitutes important trade secrets, it is difficult for chipmakers to pursue joint technology development with a large number of companies,” said an official of the Korean semiconductor industry. “Korean semiconductor companies are pursuing technology development with a few partners to prevent technology leaks and shorten the development period.”

SK Group is nurturing the semiconductor material industry through M&As with major material companies and the vertical integration of affiliates. SK Siltron, SKC and SK Materials are expanding the Korean material ecosystem while engaging in various domestic chemical businesses.

In addition, semiconductor companies were trying to localize their materials in indirect ways, considering domestic circumstances such as controversies over inside trading and an invasion into business areas designated for small and mid-sized companies, industry sources said.

"Large companies can prevent technology leaks and secure stable suppliers through their subsidiaries, but regulations on preventing inside trading among others are burdens to them," another semiconductor industry official said

Korean Companies Locate Ways to Overcome Japan’s Measures

South Korean semiconductor and display firms are trying to diversify their supply sources to circumvent Japan's export curbs.

Samsung Electronics said on July 17 that it is testing hydrogen or etching gases supplied by multiple South Korean and non-South Korean companies in order to find out whether they can provide a satisfactory production yield. Likewise, SK Hynix is currently testing etching gases procured from South Korea, Taiwan and China to obtain an alternative to Japanese etching gases.

Samsung Electronics is already using domestically procured high-purity hydrogen fluoride in some of its semiconductor manufacturing processes. The Korean semiconductor manufacturers are considering importing the chemical from Russia as well.

SK Hynix initiated testing of domestically procured high-purity hydrogen fluoride. The hydrogen fluoride that is being tested by SK Hynix is supplied by SoulBrain, a Korean company that is producing the chemical by importing raw materials from China. SK Hynix has used hydrogen fluoride SoulBrain imported from Japan.

Chinese news outlets reported on July 16 that Befar Group, a chemical company located in Shandong Province, signed a hydrogen fluoride supply contract with a South Korean semiconductor manufacturer.

The Nihon Keizai Shimbun also reported that Samsung Electronics recently began to test the quality of etching gas supplied by a non-Japanese company, adding that the supplier is probably South Korean, Chinese or Taiwanese. It is also said that SK Hynix is considering using hydrogen fluoride supplied by a non-Japanese company and that Russia is planning to sell high-purity hydrogen fluoride to South Korean companies.

Both Samsung Electronics and SK Hynix are making no comment about the news. “It seems that the companies began to diversify their supply sources before the Japanese government’s export restrictions,” said an industry insider, adding, “In view of the nature of semiconductor manufacturing processes, the substitutes are likely to become actually usable in one year or more.”

According to the Korea International Trade Association, Chinese and Japanese etching gases accounted for 46.3 percent and 43.9 percent of South Korea’s hydrogen fluoride imports from January to May this year, respectively.

Many in the industry say that the news about South Korean semiconductor manufacturers’ substitute procurement can be burdensome on Japan’s part. “As the manufacturers reduce their dependence on Japanese materials, more and more Japanese companies will criticize the Shinzo Abe administration, and then the Japanese government will be blamed in the event of a significant undersupply of semiconductor chips,” one of them explained.

LG Display CTO Kang In-byeong said that the company is currently testing Chinese and Taiwanese hydrofluoric acid. “The impact of the restrictions on our OLED panel and rollable TV production is nothing to worry about,” he said.

“In the display industry, the export restrictions are not as serious as in the semiconductor sector, and display manufacturers use less hydrofluoric acid than semiconductor manufacturers,” the CTO explained, adding, “Chinese and Taiwanese hydrofluoric acid can be substitutes for the same material supplied by Japan, and we will prepare countermeasures through inventory check.”

LG Display is also seeking to overcome Japan’s export restrictions by starting volume production of 8.5th-generation OLED panels at its plant in Guangzhou, China. "Since the Chinese factory is procuring display parts locally, it is free from Japan's export regulations," an LG Display official said.

Technology Development Needed to Reduce Dependence on Imports

The South Korean government will expedite the domestic development and commercialization of the materials, components and equipment highly dependent on imports.
The South Korean government will expedite the domestic development and commercialization of the materials, components and equipment highly dependent on imports.

As the Japanese government tightens restrictions on semiconductor material exports to Korea, there is a growing call for localization of major items.

The South Korean government is planning to review its projects related to the development of industrial materials, components and equipment with regard to Japan’s export restrictions on the chemical materials.

“We are going to expedite the technological development, commercialization and demonstration projects so that more of the materials, components and equipment highly dependent on imports can be domestically supplied,” said Vice Minister of Strategy and Finance Koo Yoon-chul, adding, “At the same time, we will try so the National Assembly can take those that can be launched within this year into account during its deliberation on the supplementary budget and take the rest into account during its deliberation on next year’s budget.”

The government is going to provide liquidity support so already developed items can be mass-produced and conduct demonstration tests for reliability verification with potential clients as to technologies in the phase of commercialization. In addition, it is going to keep assisting with investment in items requiring more R&D.

“We will do our utmost so that the repercussions of Japan’s export restrictions can be minimized,” the government said, adding, “Also, we will make the most of this opportunity for domestic technological development and import source diversification.”

Park Jae-keun, head of the Korean Society of Semiconductor & Display Technology also said “Domestic material development and supply source diversification have to be pursued regardless of Japan’s export restrictions,” Adding that Samsung and SK will be able to lead the domestic development of industrial materials that have been dependent on Japanese suppliers.”