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Technology

Samsung's advanced chip debut risks delay after Japan crackdown

Questions loom over South Korean company's ambition to challenge TSMC

Any disruption in the supply of EUV photoresist chemicals could delay Samsung's plans to launch its 7-nanometer chips around the turn of the year. (Photo courtesy of Samsung)

TOKYO/TAIPEI -- Samsung Electronics' ambition to roll out its most advanced processor chip early next year is at risk of being delayed as a result of Japan's tighter export controls on semiconductor materials crucial to South Korean industry, sources familiar with the matter told the Nikkei Asian Review.

Three major suppliers of photoresist chemicals to Samsung's latest and most cutting-edge chipmaking project -- Tokyo Ohka Kogyo, Shin-Etsu Chemical and JSR -- told Nikkei they did not know whether their supplies could continue as normal following the introduction of the new controls on July 4.

A senior government official told Nikkei that Japanese companies had been required to halt all shipments until they receive a government license for each order. This could take up to 90 days or even longer, depending on each case, he said.

One person close to the company's advanced chipmaking plans said elements of Samsung's research program had already been affected. "The company has to put on hold some part of EUV [extreme ultraviolet]-related chip development for the time being in order to make sure the crucial photoresist supply can be secured in the future," the person said.

Any disruption in the supply of EUV photoresist -- a coating product used in the extreme ultraviolet lithography vital to the most complex semiconductors -- could set back Samsung's plans to launch its 7-nanometer chips around the turn of the year.

The advanced mobile and networking processors are crucial to Samsung's flagship smartphone rollout next year, as well as its 5G telecom equipment. But they are also fundamental to the company's ambition to more than double its advanced contract chipmaking share to 25% from less than 10% by 2023, in a bid to take on market leader Taiwan Semiconductor Manufacturing Co.

Analysts voiced concern over the schedule for its advanced chip project. "We are still concerned about whether Samsung can secure enough supply of high-end photoresists in time for their most cutting-edge chip production program," said Mark Li, a veteran semiconductor analyst at Bernstein Research. "It's extremely challenging to replace photoresist suppliers."

"If the restriction is not solved quickly, [this] limitation will definitely slow Samsung's ability to produce its own new processor chips for smartphones," he added. It could also undermine "its ambition to roll out the most advanced chip production technology and ... its capability to grab share from TSMC."

Industry sources said the severity of the disruption depended on the length of the dispute between Seoul and Tokyo, which has acknowledged that it is targeting South Korea's core industry in retaliation for that country's inaction on court rulings over wartime compensation claims.

Japan's surprise crackdown this month on the export of three semiconductor-related materials -- photoresist, fluorinated polyimides and etching gas -- has raised concerns over the impact on the global economy. Samsung Electronics and SK Hynix, the world's two largest memory chip providers, control more than 70% of the world's market for dynamic random-access memory and more than 40% of global NAND flash market. They both rely heavily on Japanese suppliers for the vast majority of these important chipmaking materials.

EUV photoresist supplier Tokyo Ohka Kogyo, or TOK, said it was now "not sure" whether its planned new plant in South Korea -- meant to support its client's advanced chipmaking project -- would still be on track to start production by 2020. JSR, another EUV supplier, was uncertain whether its Belgian plant would be able to supply South Korean customers, given that some technologies were sourced in Japan.

Shin-Etsu, which also supplies EUV photoresist to Samsung, told Nikkei that it only produced the product in Japan and so it was applying for an export license. This could take 90 days, a spokesperson acknowledged.

While Samsung is understood to have built up three months' stock of etching gas, used for making both memory and non-memory chips, it is more difficult to hold inventories of the EUV photoresist coating crucial to advanced chipmaking, several sources said. It expires within weeks of opening and requires such demanding storage conditions that it is unrealistic to stock vast quantities for the long term, the sources said.

"It's very rare for chip manufacturers to stockpile those things," one chip industry executive said.

Replacing Japanese suppliers of EUV photoresist with alternative sources was also unrealistic in the short term. "It is not totally impossible to replace those Japanese suppliers, but it would take one year to achieve that, as the chip manufacturing process together with chip designs have to be tested all over again," said one person familiar with the matter.

Only a handful of big chipmakers such as Samsung and TSMC have the costly and complex technology to make the 7-nm chips. TSMC is set to be the first to bring a chip using EUV technology to market by the end of this year.

Samsung is the longtime world leader for chips in the DRAM and NAND flash categories, and the company makes chips both for its own products and for external customers. The Japanese export controls do not appear to have had a severe impact on Samsung's memory chip production, as the industry was already suffering from an oversupply that has depressed prices over the last year, sources told the Nikkei Asian Review.

However, its ambitions to challenge Taiwan's TSMC as the world's biggest contract chipmaker across the board could be delayed by the controls if the situation persists and approvals are not speedily given, said several sources.

The South Korean company in April announced it planned to invest 133 trillion Korean won ($113 billion) by 2030 to strengthen its non-memory logic chip business, a move widely seen as a challenge to TSMC's global position.

The two biggest semiconductor manufacturers in the world -- Samsung and TSMC -- have long competed to develop the most advanced chip production technology to support cutting-edge processors, artificial intelligence and modems.

Chip designers such as Apple, Huawei Technologies, Samsung, Qualcomm and Nvidia have tended to line up in different camps as they prepare for new technologies such as 5G, AI and autonomous driving. Apple and Huawei are TSMC customers, while Qualcomm and Nvidia have tended to place orders with both TSMC and Samsung, sources said.

Qualcomm did not respond to the Nikkei Asian Review's request for comment as of publication. Nvidia told the Nikkei Asian Review in a statement that it uses both TSMC and Samsung for manufacturing, and "we plan to continue to use both foundries going forward."

Samsung did not respond to the Nikkei Asian Review's request for comments. Nikkei earlier reported that Lee Jae-yong, vice chairman of Samsung Electronics and the group's de facto chief executive, traveled to Japan on Sunday to meet executives from Japan's megabanks and business partners.

South Korean President Moon Jae-in on Wednesday told executives from 30 South Korean conglomerates, including Samsung, that "we can't rule out the possibility that the situation would be prolonged, despite our diplomatic efforts to resolve the issue," Reuters reported.

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