Grand plan in chips becoming distant memory

Samsung Electronics Vice Chairman Lee Jae-yong speaks at an event on April 30 in Hwaseong, Gyeonggi, in which he vowed to make the company the top manufacturer of non-memory chips. [JOONGANG ILBO]

Fears are growing that Korea will lose its edge in the non-memory chip business if Japan’s restrictions on the export of key materials continues longer than expected.

If the crisis drags on, the goal of Samsung Electronics to become the world’s No. 1 producer of systems semiconductors will become much more difficult to achieve. The company announced the plan in April and promised to commit 113 trillion won ($96 billion) to the effort.

“Samsung may not even be able to retain the business, much less become No. 1 in the non-memory sector,” said a source in the chip industry on Monday.

“Whereas some 100 semiconductor researchers could earn as much as 1 trillion won in the memory sector, even 1,000 researchers cannot manage to earn 10 billion won in the non-memory sector hypothetically.”

The comments suggest that it won’t be easy for Samsung to apply the same tactic it used in the memory chip business to the non-memory memory business and leap to No. 1. Japan’s recent restrictions are expected to make the challenges that much greater.

The essence of non-memory business lies in “trust,” industry sources say. Non-memory chips, which are designed to process information, have differing specifications depending on the product made, which is why non-memory chips are churned out in relatively small batches.

In the non-memory sector, fabless companies specialize only in design and foundries manufacture on demand. Samsung has been eyeing the latter.

When a producer makes the products at specifications demanded by the customer and on schedule, trust is built and more orders are made. That way, the producer can expand its market share.

“Non-memory chips constitute a major component of products,” said a chip company spokesman. “It is similar to when you cannot complete production of a vehicle if you fail to receive the engine you have ordered on time.”

Customers cannot deal with a non-memory chip producer with unstable production and manufacturers cannot meet the deadline without a steady supply of materials. If it takes as long as 90 days for Korea to bring in supplies after Japan takes Korea off its white list of countries entitled to expedited exports, global producers could stop placing orders with Samsung Electronics.

It is especially worrying that Japan is restricting the export of photoresists, used to transfer circuit patterns onto semiconductor wafers. The product is a must for the manufacturing of the most up-to-date chips.

Samsung Electronics is in competition with Hsinchu, Taiwan-based TSMC, the No. 1 producer.

By 2007, Samsung was the fourth-largest producer in the foundry sector. But the company climbed the ladder consistently to become the No. 2 player after TSMC by the end of 2018. Samsung’s share of the market was 19.1 percent, whereas TSMC captured 48.1 percent of the market.

In the 7-nanometer category, which uses extreme ultra-violet (EUV) lithography, TSMC and Samsung are the sole players.

The production requires a machine for EUV lithography made in the Netherlands. Out of the 30 machines produced this year, TSMC has already booked 18 units. It is assumed that Samsung bought the rest, even though the company has never made it clear.

Twelve units would cost 1.8 trillion in total, a hefty investment. But Japan’s blocking of exports of photoresists to Korea is set to make them useless.

When Samsung Vice Chairman Lee Jae-yong met President Moon Jae-in at the Blue House during the meeting with chaebol heads earlier this year, Lee said the real competitiveness of Samsung in the chip business will be apparent soon.

“It’s highly likely that Vice Chairman Lee had the purchase of the machines in mind at the point of answering,” said an industry source.

The majority of photoresists EUV Samsung is using come from Tokyo-based JSR and Kawasaki, Japan-based Tokyo Ohka Kogyo. Midland, Michigan-based Dow Chemical also produces the photoresists in small quantities, but Japanese companies have an absolute technological edge, experts say.

Memory chips are churned out in large quantities by automated machines. Not many people are required for the manufacturing of memory chips.

A small team of researchers can support massive production, so job creation from the memory chip business is relatively small.

The making of non-memory chips can lead to the formation of related design firms.

An ecosystem has been built in the United States of smaller companies working with Intel, Qualcomm and AMD leading the market.

When imports of photoresists from Japan will resume will determine the future of Korea’s foundry business, experts say.

It is likely that Korea will localize hydrogen fluoride, an etching gas used in the chipmaking process being restricted by Japan, the quickest.

“Localizing hydrogen fluoride will take one to one and a half years if local experts join forces,” said an expert.

BY PARK TAE-HEE [ebusiness@joongang.co.kr]