Ratcheting up its ongoing spat with South Korea, Japan has put restrictions on export of three materials that are critical for making semiconductor chips: photoresists, hydrogen fluoride, and fluorinated polyamides. S. Korea now requires special license and permission to obtain these materials. This is serious and will impact rapidly as S. Korean chip makers don’t have excess inventory- hydrogen fluoride in particular is volatile, and thus hard to store.
Both Samsung and S K Hynix have been exploring alternative sources – domestic suppliers and potentially Russia and China, but they lack the years of expertise that Japan has in these materials and will struggle to supply the same quality. Hydrogen fluoride is extremely critical in terms of purity, and even if Korean chip makers find alternative sources it takes months for qualification. Currently memory vendors still have excess finished chip inventory, but eventually they’ll run out of these key materials and will be unable to continue production. Further, Japanese firms can refuse to ship the materials from third countries, and any efforts to bypass restrictions could subject chipmakers and suppliers to additional sanctions.
This isn’t new – it was only after 2003 that Japan gave S. Korea a special status, so S. Korea can rebuild the supply chain, but this uncertainty will definitely have a negative impact. It is also important to note that this dispute is mired in history, so is unlikely to get resolved any time soon, and could easily get worse.
Gartner’s published research around resiliency of supply chains, “Electronic OEMs Must Safeguard Supply Chains to Negate the Impact of Natural Disasters and Major Accidents” is a relevant research to help companies navigate through these circumstances.