‘Samsung’s foundry expansion faces hurdle on Japan’s export controls’

Samsung Electronics’ plan to become the world’s top producer of both memory and non-memory chips could be derailed if Japan continues to restrict exports of chip- and display-making materials, according to the Export-Import Bank of Korea (Eximbank) Tuesday.

The world’s largest memory chip maker has been desperate to expand its non-memory chip business, which accounts for about 70 percent of the entire semiconductor industry. To diversify its business portfolio that is still highly dependent on memory chips, Samsung is especially focusing on strengthening its foundry business.

However, Japan is sticking a lethal dagger into the tech company’s ambition as it imposed tougher restrictions on exports of high-tech materials such as photoresist, etching gas and fluorinated polyimide, which are critical in producing chips and displays.

Predicting the possible impact of Japan’s export curb, the Eximbank report said Samsung would have difficulties in expanding its foundry business due to challenges in procurement of photoresist, a crucial material for chip producing.

“After introducing advanced extreme ultraviolet (EUV) chip-making technology, Samsung is trying to catch up to TSMC of Taiwan, the leader of the foundry business. However, Samsung may have difficulties in expanding its foundry business because of concerns over procuring photoresists for the EUV process,” the report said.

Photoresist is a light-sensitive material and critical source for manufacturing semiconductor chips. The material is particularly indispensable for EUV technology that enables the company to produce smaller and less power-hungry chips.

The semiconductor foundry business refers to contract-based chip manufacturing for companies that cannot afford their own facilities. Samsung currently holds the second largest share in the foundry business following TSMC. According to data by industry tracker TrendForce, Samsung had a 19.1 percent share in the first quarter of 2019, while TSMC had a 48.1 percent.

The report added etching gas and fluorinated polyimide are replaceable by increasing imports from other countries outside Japan but it won’t be as easy to find new suppliers for photoresists for which the Korean chipmakers are over 90 percent dependent on Japanese firms.

“Japanese companies have dominated 90 percent of the global photoresist market and photoresists for EUV are monopolized by them,” it said.

To seek a workaround, Samsung Vice Chairman Lee Jae-yong left for Japan to ask Japanese partners to supply the restricted materials from their plants located outside Japan. For instance, JSR, a Japanese photoresist maker, has its production facility in Belgium but the report predicted the workaround could be blocked by the Japanese government. Samsung had been purchasing photoresists from Sumitomo, Shin-Etsu and JSR.

“Currently, photoresists produced by JSR’s Belgium facility is not restricted to export to Korean firms, but if the Japanese government strengthens the restrictions the facilities outside Japan also could become objects of regulation, Samsung would have difficulties in securing its customer companies for the foundry business,” the report said.

Samsung is scheduled to mass produce of 7 nanometer-EUV chips starting the second half of 2019 using the EUV technology.

Lee Jong-hwan, a professor at the Department of System Semiconductor Engineering at Sangmyung University, said Samsung will go through difficulties if it fails to procure the materials.

“Photoresists cannot be provided by companies other than the Japanese firms. While the Korean companies have stockpiled photoresists before the export curb took effect, they may run out of the material soon,” the professor said.

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