Samsung heir leads localization of high-tech parts

President Moon Jae-in, left, takes a tour of Samsung Electronics' semiconductor production plant in Hwaseong, Gyeonggi Province, April 30, 2019, while accompanying the group's leader Lee Jae-yong, right, and Yoon Boo-keun, center, the-then vice chairman of the company. / Korea Times file

By Baek Byung-yeul

Samsung Electronics Vice Chairman Lee Jae-yong is leading Korea's moves to reduce its heavy reliance on high-tech parts and equipment made by Japanese firms, following Tokyo's prolonged export controls on these.

Since Japan placed export controls on high-tech materials bound for Korea in July 2019, Seoul has strengthened its efforts to support local high-tech materials, parts and equipment companies.

In line with the government's efforts, Lee visited Semes, a key contractor of Samsung Electronics that produces semiconductor- and display-making equipment, in Cheonan, South Chungcheong Province, Tuesday, to inspect the subsidiary's production line.

During the visit, Lee emphasized the affiliate's role amid growing uncertainties due to the U.S.-China and Japan-Korea trade disputes and the economic slump caused by the COVID-19 pandemic.

"We can't predict the end of these uncertainties," Lee said during his visit. "We have a long way to go. If we stop here, we have no future."

The vice chairman's visit came four days after a panel of outside experts recommended prosecutors stop their investigation and moves to indict Lee.

The de facto leader of Samsung Group was alleged by prosecutors to have conspired with other executives to lower the value of Samsung C&T and inflate that of Cheil Industries before their merger in 2015. This cemented the transfer of control of the Samsung Group to Lee from his ailing father Chairman Lee Kun-hee.

It remains to be seen whether the prosecution will accept the recommendation of the independent committee as it don't necessarily have to accept the conclusion. But the panel's decision is a clear win for Samsung because the recommendation gives Samsung's lawyers an opening to challenge any justification for the investigation to continue.

For Lee, who's been at the front lines in the trade spat with Japan since last year, the panel's conclusion gave him interim relief over lingering uncertainties surrounding Samsung and will help him concentrate on his role as a decision-maker for the nation's largest conglomerate.

After Japan started to implement export restrictions on the key high-tech materials, Lee made a business trip to Tokyo in July 2019 and ordered his executives to prepare contingency plans to foster the local materials, parts and equipment industry and diversify Samsung's supply chain and reduce its reliance on Japanese firms.

One year after the export controls were initiated, Samsung Electronics has begun moves to improve competitiveness and self-sufficiency in the local semiconductor industry by strengthening its collaboration with domestic chip-related companies and research institutions.

The company said this shows Samsung's drive to achieve mutual growth with its subcontractors and academic and research institutions, as China scrambles to foster its own semiconductor industry and avoid any difficulties in procuring chip-making materials, components and equipment.

Samsung Electronics Vice Chairman Lee Jae-yong, right, inspects the production line of Semes, Samsung's key semiconductor equipment supplier, in Cheonan, South Chungcheong Province, Tuesday. Samsung said he inspected the production lines of chip- and display-making equipment as part of a new on-site management policy. / Courtesy of Samsung Electronics

At a time when the conglomerate needs to find a breakthrough, Lee's role as head of the global semiconductor company has become more important than ever as it is actively trying to expand into the non-memory business including the logic chips and foundry sectors.

Being threatened by China's ambitious plan to nurture its own semiconductor industry to overtake traditional chip powerhouse countries Korea, Taiwan and the United States, Samsung has been speeding up its fostering of the non-memory chip business.

Under such circumstances, Lee announced the company's vision last year to become a leader in this business by 2030, investing 133 trillion won ($110 billion) by that year. The non-memory chip business includes the foundry sector, or contract-based chip manufacturing for chip design companies that don't have their own production lines.

Samsung's decision to join the race for the foundry and logic chips sectors is understandable as the memory chip business, which the company has been taking a firm hold on, only accounts for about 30 percent of the entire chip business.

To succeed in the new sectors, however, analysts said Samsung needs to take a different approach as the memory chip business is different from the other sectors, which are "high-volume and low-mix."

"Samsung is always looking for the next path to growth: 'Where do we go from here?' Its market share in DRAM and NAND flash is high enough that the company cannot easily increase it without worrying both its customers and government bodies that it will become a monopoly, so it is looking to other markets. Today Samsung has made a strong entry in the foundry business, which is a differentiated high-mix market, so it's questionable whether this investment will pay off for the company," said Jim Handy, a semiconductor industry analyst at Smartkarma.

"Samsung has also toyed with becoming a supplier of microprocessors and application-specific integrated circuits (ASICs), but these products are differentiated and are therefore a poor fit for Samsung's core strengths. They would require a significant expansion of the company's sales organization to garner design wins."