Samsung Electronics is facing difficulties in fulfilling contracts with major U.S. companies due to Japan’s export restrictions on Korea.

Key parts and materials needed to fulfill foundry contracts are no longer coming from Japan, and the company’s plans to grow its non-memory chip market is also in danger.

“Trust with customers is important in the foundry business, but we are worried as the contracts we worked hard to acquire in competition with the Taiwan Semiconductor Manufacturing Company are about to crumble,” said a foundry business executive at Samsung Electronics during its foundry forum held at the InterContinental Grand Seoul Parnas in Gangnam, southern Seoul, last week.

The executive was worried that the foundry business would be hit by recent export restrictions from Japan on three advanced materials – hydrogen fluoride, photoresists and polyimide. The foundry business is an area that the Korean government highlighted as an area where it expects to lead the global market by 2030 with a market share of 35 percent. Success at Samsung Electronics is crucial for that dream to be realized.

Samsung’s non-memory business consists of its foundry business, which is manufacturing non-memory chips for outside clients, and its System LSI (large-scale integration) business, in which Samsung designs, manufactures and sells non-memory chips such as mobile processors and image sensors.

But the government’s goal could remain an unachievable dream as Samsung is facing difficulty in supplying semiconductors to IBM, Qualcomm and NVidia as contracted.

More precisely, it is no longer receiving the photoresists needed to manufacture semiconductors with extreme ultra violet (EUV) lasers. By using EUV, which has a wavelength that is one-fourteenth the size of an Argon fluoride laser, manufacturers can make more delicate light tracks and therefore higher-quality chips.

With the technology, Samsung Electronics was looking to create an EUV-exclusive assembly line and start manufacturing chips with 7 nanometer lasers by January next year. It was also looking to use EUV photoresists in producing dynamic random access memory (DRAM) chips.

Photoresists are not the only material that Samsung Electronics is dependent on Japanese imports for. As the trade retaliation is imposed, Samsung Electronics can only last a month at tops with the amount of hydrogen fluoride – or etching gas – it has in stock. Hydrogen fluoride is also a key material in the manufacturing of semiconductor and displays.

In response to the restriction, Samsung Electronics hurriedly sent its employees to China and Taiwan to secure new parts suppliers. Even though it contracted with Japanese supplier Stella Chemifa’s factory in Taiwan to secure a supply, it is believed that the deal will need the Japanese government’s approval before it is finalized.

Even if supplies are ensured, quality of products could be another issue. Although Samsung Electronics and SK Hynix can bring in hydrogen fluoride with a purity of 99.9 percent or 99.99 percent, it is mostly Japanese companies that can supply the most purified hydrogen fluoride at 99.999 percent.

With purer hydrogen fluoride, manufacturers end up with fewer faulty chips and assure a higher quality for their products. With less pure hydrogen fluoride, assembly lines could also be slowed down.

“We can only avoid the worst if we have three months’ supply of high-quality hydrogen fluoride,” said a semiconductor industry source.

According to the export restrictions, Japanese companies have to apply for individual permission for each shipment of restricted project in an application process that could take up to 90 days.

Some experts also believe that Japan could expand its economic retaliation against Korea beyond the supply of the three materials. Wafers could be the next on the list as Japan supplies 53 percent of all wafers globally, while SK Siltron only has a 9-percent share of the market.

“Although companies could buy the wafers from Taiwan or Germany, in this situation, it is challenging for companies to shift their supplier base from Japan,” said Park Yoo-ak, an analyst at Kiwoom Securities.

Mask blanks, which transfer the minute highly complex circuit patterns for semiconductors, could also be the next export restriction item from Japan.

Samsung relies on Japanese company Hoya’s mask blanks to manufacture its 7 nanometer-EUV chips.

*Original article online at http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3065270&cloc=joongangdaily|home|newslist1

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