BloombergSEOUL (Bloomberg) — Resurgent tensions between Japan and South Korea threaten to wallop chipmakers from Samsung Electronics Co. to SK Hynix Inc., upsetting a carefully choreographed global supply chain by smothering the production of memory chips and other components vital to widely used devices.
As the world fixates on U.S. President Donald Trump’s campaign to contain Huawei Technologies Co. and China’s ambitions, a concurrent dispute between Beijing’s two richest neighbors also has far-reaching implications for the production of everything from Apple Inc. iPhones to Dell Technologies Inc. laptops. The industry is now scrambling to gauge the fallout after Japan — citing longstanding and unresolved tensions — slapped restrictions on exports to South Korea of three classes of materials crucial to the production of semiconductors and cutting-edge screens.
That maneuver, the most recent manifestation of decades of war-time tensions, places Samsung at the center of a firestorm and again underscores the global nature of the production machine that cranks out most of the world’s gadgets. Not only does it make memory chips, but Samsung is also the biggest producer of smartphones.
Korea’s largest company has lost about 16 trillion won ($13 billion) in market value this month through Monday, while Hynix has shed 1.5 trillion won. The two companies together account for 60 percent of the world’s memory chip-making capacity.
While inventory levels differ across each material, Samsung has less than a month’s worth of supply on average, according to people familiar with the matter. Samsung and SK Hynix are busily sourcing alternatives, the people said, asking not to be identified talking about a sensitive political issue.
The two South Korean giants assured clients they would try to minimize the impact on output, but Samsung, for one, is bracing for potential production cuts or even stoppages should the situation persist, the people said.
That’s why the Korean conglomerate’s de facto leader, Jay Y. Lee, hopped on a jet to Tokyo over the weekend for emergency meetings with Japanese suppliers. It’s unclear how deeply felt the impact might be — much depends on whether Prime Minister Shinzo Abe and South Korean President Moon Jae-In can work out a compromise. But in a worst-case scenario, flexible screens for iPhones and other mobile devices could sputter, while memory chips used in everything from HP Inc. notebooks to Amazon.com Inc. servers could dwindle.
“This is an unprecedented event,” said Jongjun Won, chief executive officer at Lime Asset Management Co. “If it’s lucky, the chip industry may be able to adjust inventories. However, the intertwining of politics and business is making it difficult to find a solution.”
The dispute has spilled over into social media. South Koreans, angered by Japan’s move, have taken to Instagram and other platforms to call for boycotts of Japanese travel and consumer products.
Japan is targeting a trio of materials that, while little-known outside of the industry, is profoundly important for electronics production. The government says they also have sensitive military applications. Within the tech sector, fluorinated polyimide is required for the production of foldable panels — such as those used in Samsung’s Galaxy Fold — among other things. Photo-resists are key to chipmaking, while hydrogen fluoride is needed for both chip and display production.
Finding substitutes won’t be easy: Korean corporations now depend on Japan for over 90 percent of all the fluorinated polyimide and resists it needs, and 44 percent of its hydrogen fluoride requirements, Societe Generale estimates.Speech