Localization is proceeding quickly

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Localization is proceeding quickly

Korean companies are making significant progress in localizing supply, two months after Japan tightened exports of core materials for manufacturing chips and displays.

On July 4, Japan imposed export restrictions on three key materials: hydrogen fluoride, photoresists and fluorine polyimide. In less than two months, Samsung Electronics and SK Hynix have managed to maintain production without interruption by working around the Japanese measures.

The move has increased the possibility that Japanese material makers will be marginalized in the global supply chain - despite the original plan to deal a blow to local companies.

Korea’s Soulbrain is set to begin the mass production of high-purity hydrogen fluoride prototypes for DRAM and NAND flash production this month Monday, according to industry sources. The prototype is “five-nine” hydrogen fluoride, with 99.999 percent purity. Made from China-imported anhydrous, it is close to the levels of purity of Japan-sourced material. Japanese producers also import some of the raw material from China. Mass production will begin this month.

Domestic hydrogen fluoride is expected to be used for DRAM and NAND flash production around the year’s end. Divisions that develop raw material at Samsung and SK Hynix are currently analyzing the components of the prototype. It will take around two to three months to complete the tests.

The entire semiconductor production process takes around 60 to 90 days - from an input wafer to a packaged chip. Samsung and SK Hynix have stocks of raw materials imported from China, Taiwan and Singapore, enough to last until the end of 2019.

In television production, domestic hydrogen fluoride is already in use.

The display industry has taken swift action, as it uses hydrogen fluoride of relatively low purity. LG Display has already put domestic hydrogen fluoride to use not only in liquid crystal display (LCD) production lines but also in organic light-emitting diode (OLED) TV production lines, replacing Japanese imports. Samsung is in the final stage of testing domestic hydrogen fluoride and expects the tests to finish this month.

For photoresists, another material for which exports were tightened in July, both Samsung and SK Hynix will be importing material from JSR, a Japanese company with a factory in Belgium, according to industry sources. The site is a run by a joint venture of JSR and Belgium’s IMEC and was launched in 2016 to produce photoresists for extreme ultraviolet (EUV) photolithography.

Tokyo Ohka Kogyo (TOK), another EUV photoresist maker, already operates a factory in Songdo, Incheon. The company plans to increase its production to meet demand from Samsung Electronics. The Japanese government’s recent approval for the export of hydrogen fluoride and photoresists of two companies shows that it is also aware of how its companies bypass restriction and supply their products to local chipmakers.

In case of fluorine polyimide, Japan’s restriction didn’t have a significant effect.

“From the beginning, the Japanese government’s restriction was leverage for political negotiations with Korea,” said Do Hyun-woo, an analyst at NH Investment & Securities. “The restriction was unlikely to take a toll on the chip production of global players like Samsung Electronics and SK Hynix.”

In an Aug. 30 report, Woori Finance Research Institute (WFRI) said silicon wafers, shadow masks, blank masks and photomasks were the products most likely to be localized.

“Among seven import restriction items, localizing products of six items except photoresists will be able to replace Japan imports worth $1.1 billion per year,” said Kim Soo-jin, the head researcher at WFRI.

BY HAN AE-RAN, KIM YOUNG-MIN [kim.byungwook@joongang.co.kr]
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