Japanese suppliers lose out as Samsung engages local vendors

The photo shows the interior of a Samsung Electronics chip plant in Hwaseong, Gyeonggi Province. / Courtesy of Samsung Electronics

By Kim Bo-eun

Japan's export curbs imposed in 2019 on key materials for semiconductor production in Korea seem to be backfiring, as local chipmakers have largely replaced Japanese suppliers with local firms.

Leading media in Japan are sounding alarm bells over the situation, under which the export restrictions that were intended to pressure Korea's top industry have ended up benefiting Korean suppliers. The Nikkei published an article recently about Korean players in the chip industry cutting their reliance on the Japanese material makers that they had depended on earlier based on the lack of homegrown technology.

Japan removed South Korea from its list of preferred trading partners for components crucial to Korea's manufacturing industries asking Cheong Wa Dae to reverse the Korean Supreme Court's ruling that ordered Japanese companies to compensate surviving South Korean victims of wartime forced labor. President Moon Jae-in didn't accept Japan's requests, with the government announcing various financial assistance plans to back up homegrown component makers in order to cut Korea's reliance on Japan for industrial materials.

Recent data from the Korea International Trade Association (KITA) shows imports of hydrogen fluoride, one of the three key materials for which the restriction was imposed, came to $9.38 million in 2020, plunging 74.2 percent from a year earlier.

Samsung Electronics, which used to source silicon wafers mostly from Japan's Sumco, now gets them from local company SK Siltron. Sumco is among the top players in the market. SK Siltron is Korea's only producer of silicon wafers and is the world's fifth-largest wafer manufacturer.

Samsung Electronics has also switched to Soulbrain for much of its sourcing of hydrogen fluoride, which is used as an etching gas in making chips. Up until 2019, the semiconductor powerhouse had been supplied by Dongwoo Fine-chem, which is a wholly owned subsidiary of Japan's Sumitomo.

Specifically, Japan's exports of three key chemicals for the production of semiconductors ― hydrogen fluoride, fluorinate polyimide and photoresists ― were restricted, in what was seen as a move to deal a blow to Korea's semiconductor industry that drives the local export market.

The three chemicals were produced mostly by Japanese firms up until then. But backed by government support including R&D subsidies at a time when Seoul-Tokyo relations were sagging, local companies rushed to develop their own technologies. This push resulted in Korean firms making a great leap in competitiveness.

“We are sourcing their supplies as their technologies and quality have been proven,” an official of a major chipmaker said of the local producers.

At the same time he noted, “We wouldn't source from Korean suppliers just because they are Korean. If there are competitive local vendors in certain materials we would choose to source from them, but if not, we would seek overseas-based suppliers.”

An official of another semiconductor manufacturer said, “We have replaced many Japanese vendors will local ones and we do not see a great difference in quality. The competitiveness of Korean materials makers have been enhanced to a considerable extent.”

He also noted, “This is not a matter of the nationality of vendors, though. Japan's export restrictions exposed the risks of reliance on a sole vendor. We now source more from local suppliers, but also from others around the world. Pursuing a multi-vendor system is key for companies like us.”