Can SK Hynix only last 4 months? Rumor has it that Japan has more tricks up its sleeve!

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The Japanese Ministry of Economy, Trade and Industry announced on July 1 that it will strengthen export controls on semiconductor materials to South Korea from July 4. The news made the market worry that South Korean semiconductor production may be affected, and the South Korean government also held an emergency meeting to discuss countermeasures. According to Japanese media, the South Korean authorities have not yet made specific responses to the issue of Japanese companies' compensation for forced labor during World War II. Therefore, in order to force South Korea to take action, the Japanese government is considering expanding export controls on South Korea and adding additional targets for control.

The export control targets of the Ministry of Economy, Trade and Industry are fluorinated polyimide (PI, Polyimide) used in the manufacture of OLED panels, photoresist (resist) and etching gas (hydrogen fluoride) which are indispensable in the semiconductor manufacturing process. Currently, when the above three products are to be exported to South Korea, enterprises can apply for export licenses for multiple products from the Japanese government at one time. However, starting from July 4, the preferential system will no longer apply to the export of the above three products to South Korea. Each contract (each product) will be subject to review/permit. In this way, the application and review time for export licenses may take about 90 days.

Kyodo News reported on the 2nd that the Japanese government is evaluating and intends to expand its export control measures on South Korea. It plans to expand the number of items under control from the current three, and electronic parts and related materials that can be converted for military use may become additional targets.

The report pointed out that because South Korea has not responded to the Japanese government's request for forced labor during World War II, the Japanese government plans to take tougher measures to force the South Korean authorities to make a statement. However, if the export control is really expanded, it will inevitably cause a strong backlash from South Korea, which may further deteriorate the relationship between the two sides. Therefore, there are voices within the Japanese government that should be "cautious".

Regarding the issue of forced labor during World War II, the Japanese government asked the South Korean government to set up an arbitration committee based on the "Japan-South Korea Claims Agreement" signed when Japan and South Korea established diplomatic relations in 1965. However, the South Korean government has not yet made any specific response to resolve the above issue.

The Korean media Chosun Ilbo reported on the 2nd that Japan is the world's strongest country in the materials industry. Japan's global market share of the above three key semiconductor materials is 70-90%, and export control will inevitably impact South Korea's semiconductor and panel industries. From January to May 2019, among the semiconductor materials imported from overseas by Korean companies such as Samsung Electronics and SK Hynix, the proportion of Japanese materials reached 43.9% (etching gas) to 93.7% (fluorinated polyimide). Among them, Japanese fluorinated polyimide has superb quality and is an indispensable material for the production of foldable OLED panels equipped with Samsung's new model "Galaxy Fold".

The report pointed out that if Korean companies are unable to obtain the above three key semiconductor materials due to Japan's export control, Samsung and other South Korean semiconductor giants will only be able to survive for 3-4 months. According to reports, Samsung, SK Hynix and other semiconductor manufacturers currently have only about one month's inventory of the three materials. If three months of finished product inventory such as DRAM is included, Korean semiconductor manufacturers can only survive for 3-4 months.

In this dispute between Japan and South Korea, the biggest impact should be on memory chips. The NAND Flash and DRAM markets are really "one wave after another". The power outage on the 15th of last month at Toshiba, the world's second largest storage memory manufacturer, has not been resolved. On July 1, the Japanese government suddenly announced that it would impose economic sanctions on South Korea, restricting the export of Japanese semiconductor materials and OLED display panel materials to South Korea, and officially implemented on July 4. The economic sanctions implemented by Japan this time will inevitably affect the NAND Flash and DRAM production of Samsung and SK-Hynix, two major Korean semiconductor manufacturers.

There are three main categories of materials that Japan restricts exports to South Korea, namely Fluorine Polyimide used in TV and mobile phone OLED panels, Resist photoresist used in semiconductor manufacturing, and Eating Gas high-purity hydrogen fluoride. It is understood that Japan has basically monopolized the global market for fluorine polyimide and hydrogen fluoride materials, accounting for 90% and 70% of the global market share respectively.

In addition to the materials used by Samsung and LG to make televisions and smartphones, Resist photoresist and Eating Gas high-purity hydrogen fluoride will be used in large quantities in semiconductor manufacturing. Photoresist layer materials are basically used in integrated circuit and chip manufacturing. This material is used to transfer the circuit structure to the semiconductor substrate.

Semiconductors and display panels are South Korea's two major high-tech pillar industries. Japan's economic sanctions against South Korea will undoubtedly deal a heavy blow to South Korea's economy. The first to bear the brunt will be giants such as Samsung, LG, and SK-Hynix. As for Apple, Google, SONY, Huawei, OPPO, vivo and other related customers will also be affected.

According to the Nihon Keizai Shimbun, Korean companies have a strong advantage in storage semiconductors, with a 70% global market share in the DRAM field and a 50% share in NAND Flash. Both DRAM and NAND Flash products are installed in electronic devices such as smartphones, TVs, and personal computers.

In response to Japan's economic sanctions, South Korea stated that restricting the export of semiconductor materials has violated WTO World Trade Organization regulations. It will take the matter seriously and is exploring countermeasures and considering appealing to the WTO.

However, before the two sides resolve the issue, the problem faced by Korean companies is that without semiconductor materials from Japanese manufacturers, production may be affected. Currently, it is reported that SK-Hynix has stated that its inventory is less than three months, and if it cannot obtain sufficient material supply in the future, it will stop production. Samsung said that it has not yet published a report and is evaluating the impact.

If Korean semiconductor shipments are delayed, the global DRAM and NAND Flash markets are expected to be impacted again.