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International relations

US, Japan and South Korea to discuss 'secure' chip supply chain

Following trilateral talks, White House to invite Samsung and peers to discuss production

A senior White House official said the U.S., Japan and South Korea hold "many of the keys to the future of semiconductor manufacturing technology."

TOKYO -- U.S. national security adviser Jake Sullivan will include discussion of semiconductor shortages at his meeting with top Japanese and South Korean officials on Friday, a senior U.S. official said, as the chip supply increasingly becomes a national security issue involving the maintenance of the auto and electronics industries in the U.S., Japan and South Korea.

An industry source told Nikkei Asia that South Korea's Samsung Electronics, which has production facilities in the U.S., has been invited to another meeting with the White House later this month to discuss chip shortages.

The first National Security Advisor-level trilateral meeting among the three countries during the Biden administration will primarily focus on North Korea and keeping peace and stability on the Korean Peninsula. However, the official said, having these "sensitive supply chains secure" is also an important priority.

"We're going to talk extensively on technology, including on semiconductors, supply chains and biotechnology," he said, in a teleconference on Thursday adding that the U.S., Japan and South Korea hold "many of the keys to the future of semiconductor manufacturing technology."

The national security advisers of Japan and South Korea, Shigeru Kitamura and Suh Hoon, will be joining Sullivan in the trilateral dialogue at the U.S. Naval Academy in Annapolis, Maryland.

The trilateral meeting picks up chip supply issues as the U.S. and Japan since January have requested Taiwan to ramp up its chip output. Taiwan Semiconductor Manufacturing Co. is the world's biggest contract chipmaker.

South Korea is another powerhouse in chip production, with key players including Samsung Electronics and SK Hynix headquartered in the country.

According to a report published last September by Boston Consulting Group, Taiwan and South Korea were estimated to have the world's largest semiconductor manufacturing capacity in 2020, with 22% and 21% of the total capacity, respectively. These outpace Japan's 15% and America's 12%. Many Japanese and U.S. manufacturers have transitioned to "fabless" designing, becoming less capital-intensive.

Samsung also operates foundry production lines in Austin, Texas. The South Korean chip giant plans to build additional foundry lines, and Austin is a strong candidate for this investment. Samsung will be joining the upcoming meeting with Washington on April 12, together with other chip companies, said the source.

The source said SK Hynix has not been invited yet because it has no production facilities in the U.S., but added that the situation could change.

Samsung has not yet responded to a request for confirmation.

U.S. President Joe Biden, urged by a letter sent from the U.S. Chamber of Commerce, the Semiconductor Industry Association and 15 other business groups calling for quick action, signed an executive order on Feb. 24 to address the shortage.

Biden also said he will seek $37 billion in funding for legislation to supercharge chip manufacturing in the U.S., including funds for TSMC's new plant in the country.

The chip supply shortages emerged during an unexpectedly strong rebound in auto demand starting last fall, following a plunge from April to June due to the coronavirus pandemic.

Global carmakers ramped up production to make up for lost output due to plant shutdowns during the lockdown period, but this resulted in a surge in demand for semiconductors, which were already fully earmarked for consumer electronics, from laptop computers to household appliances, as more people stayed at home.

Serious shortages of automotive-related chips are prompting global carmakers to cut output. Honda Motor posted a 34% year-on-year production cut in Japan in February, mostly due to the lack of semiconductors. Toyota Motor has been adjusting production at six plants in the U.S. and Mexico and is expected to operate at unstable levels even from April.

Ford Motor said it will halt operations at six U.S. and Canadian plants intermittently through June. General Motors said in early February that the crunch could shave up to $2 billion from 2021 profits.

Japanese automakers are bracing for long-term disruptions and potential further output cuts since chipmaker Renesas Electronics, which suffered a factory fire in March, does not expect to achieve a full recovery until mid-July.

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