SEOUL -- Samsung Electronics is developing a network of chip equipment and materials suppliers inside South Korea through investments in at least nine companies as part of an effort to protect itself from being buffeted by trade conflict with Japan or between the U.S. and China.
Samsung invested a combined 276.2 billion won ($238 million) in nine midsize companies since the summer of last year, according to reports submitted to the Korea Exchange by the chip giant and the investee companies. The streak of investments stands in marked contrast with the relatively few investments Samsung made in suppliers before July 2020.
All are midsize businesses boasting strengths in specific fields. Samsung has taken small stakes of less than 10% in each, mostly through private placements of new shares, but technical support is being offered on top of that. And many companies intend to use the funds for research and development.
Eight of the companies are listed, while one is a subsidiary of a listed company.
The investment spree began with Soulbrain, a provider of hydrogen fluoride used in chip production that received 24.9 billion won in July 2020, and KCTech, a developer of wafer-polishing systems that was injected with 20.7 billion won in November. Many of their products are in areas where Japanese counterparts have large market shares.
Samsung also has taken stakes in companies that handle cutting-edge materials, investing 43 billion won in March in Fine Semitech, which makes protective materials for photomasks, as well as 21 billion won last month in DNF, an etching materials company. Samsung intends to collaborate with these companies to pursue ever greater miniaturization in an effort to produce chips with circuit lines as thin as possible.
"By strengthening our ties with a wide array of companies, we aim to make our semiconductor business more competitive," Samsung has said on the goal of its investments.
One reason for the increased investment activity is how international disputes have clouded the outlook for its chip business.
When Japan slapped export restrictions on certain chipmaking materials bound for South Korea in July 2019, domestic companies became keenly aware of their Japan dependency risk.
President Moon Jae-in has responded by promoting the domestic production of chip materials, parts and equipment. Releasing the government's 2022 budget last month, the Ministry of Trade, Industry and Energy earmarked 1.68 trillion won for industry development, up 9% on the year, saying South Korea aimed to reduce its reliance on overseas suppliers for cutting-edge materials.
Chip-related suppliers in South Korea are already expanding. Of the 14 suppliers chosen by eBest Investment and Securities as particularly benefiting from Seoul's made-in-South-Korea policy, 13 companies with year-earlier data available posted revenue growth of 39% for the first half of this year, outperforming the 17% for all South Korean companies.
Compatriot SK Hynix and others are making a similar moves, developing materials makers within their groups.
South Korean manufacturers have overtaken Japanese peers as leaders in memory chips and LCD screens. But suppliers are still in the development stage when it comes to equipment and materials that require complex technologies and years of R&D. As a result, a division of labor has developed where manufacturers have long depended on suppliers abroad.
Samsung is still challenging Taiwan Semiconductor Manufacturing head-on in the arena of cutting-edge semiconductors and has no change in plans to utilize advanced technologies from Japan, the U.S. and Europe.
But the heightened political risks cannot be ignored. With chipmaking operations in China, Samsung could see a situation where those operations are cut off from American materials and equipment due to tensions between Beijing and Washington.
Samsung's efforts to build domestic supply chains won't happen overnight, but the sheer size of the company makes its moves significant. They are also sure to have an impact on international supply chains, including on Japanese manufacturers that do substantial business with South Korean customers.