[Editor’s note: In justifying Japan’s clash with South Korea, Japanese prime minister Shinzo Abe is deploying the same playbook Donald Trump used when he fingered Huawei as a national security risk and started a trade war with China. Abe is likewise using "national security” as Japan’s official excuse to restrict the export of Japan-made chemicals to Korea.

These materials — hydrogen fluoride gas, fluorinated polyimide, and photoresists — are essential to chip manufacturing, and the restrictions will hit Korean electronics companies that are important suppliers in the global supply chain, including Samsung, SK Hynix and LG. The Japanese government so far has shown no evidence that South Korea is using the restricted materials for military applications.

For many in the global electronics industry, the trade war that just flared up between Japan and South Korea seems to have popped out of nowhere. Most experts believe that this is a bogus dispute rooted in grudges that date back to World War II. For decades, South Koreans have pushed for reparations for Japan’s use of forced labor and sex slaves, euphemized as “comfort women,” during Japan’s wartime occupation of Korea. Many in South Korea believe that the Japanese are unwilling to fully acknowledge the country’s wartime activities.

The following story by Takashi Yunogami originally appeared in EE Times Japan; it details the impact that Japan’s export restrictions are having on the global electronics industry. — Junko Yoshida]


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「対韓輸出規制」、電子機器メーカーの怒りの矛先は日本に向く?


On July 4, 2019, the Japanese government issued export restrictions, against Korea, for raw materials including fluorinated polyimide, photoresists, and hydrogen fluoride gas — essential to the production of electronics devices — in the guise of protecting national security.

The new regulations set by the administration of prime minister Shinzo Abe require Japanese material suppliers to obtain an export permit before shipping these raw materials to Korea. The newly imposed bureaucratic process is believed to add an “examination” period of about 90 days.

According to 2018 data from the Korea Trade Association, Korea sourced 84.5 percent of its fluorinated polyimide from Japan (import value of $19,720,000). Korea purchased 93.2% of its photoresists from Japan (US $ 298,890,000), and 41.9 percent of the hydrogen fluoride ($66,850,000) it used.

Based on the numbers, it would seem that the damage to Korean companies is greater in the cutback of fluorinated polyimide and photoresists.

However, I believe that the restrictions on hydrogen fluoride, on which Korea is the least dependent on Japan, poses the greatest threat to Korean companies. Further, I believe that these export controls will hobble not just Korean, but also Japanese companies. The eventual backlash will hit the Japanese government and might undercut Japan’s competitiveness. In short, in my opinion, the Japanese government is digging its own grave. The relationship between Japan and Korea will never be the same again.

Impact on limited export of fluorinated polyimide and photoresist

Fluorinated polyimide is a material of organic EL. If export restrictions zero out the stock of materials, two Korean giants — LG Electronics, a maker of organic EL TVs, and Samsung Electronics, which manufactures organic EL panels for smartphones — will suffer profoundly.

Meanwhile, the specific photoresists subject to the new export restrictions are reportedly those used for EUV lithography, a highly advanced semiconductor manufacturing technology that has entered use in mass production only this year.

This will potentially affect Samsung's state-of-the-art logic semiconductors produced at the 7-nm node. It could also impact 16-nm DRAMs, whose production is about to ramp up. Both Samsung and SK Hynix will feel the pain.

According to experts, Samsung is operating a semiconductor plant based on Toyota's “just-in-time” production system, keeping its stock of parts, components and materials at a minimum. Samsung appears to have stocks of EUV photoresists that can only last about a month. The same applies to its supply of hydrogen fluoride.

When the stock of EUV photoresist runs out…

Most advanced logic semiconductors are believed to be application processors (APs) for Samsung's Galaxy smartphone. Samsung shipped 292.3 million smartphones in 2018 — the most in the world.

All these devices must be equipped with the leading-edge APs fabricated using EUV equipment. But with only a one-month inventory of EUV resist, production of the leading-edge AP would slow, thus limiting smartphone volume.

More important, if EUV is already in use fabricating advanced DRAM, the damage will be far greater than the Galaxy slowdown. This is because Samsung and SK Hynix are the two global leaders in the DRAM market. In the first-quarter of global DRAM sales in 2019, Samsung held a 42.7 percent market share, followed by SK Hynix at 29.9 percent, or a total share of 72.6 percent, shown as figure 1 below.

Yunogami_fig1

Global DRAM Market Share by Suppliers (Source: Takashi Yunogami by compiling data from DRAMeXchange, IHS and TrendFocus)

Assuming that EUV is already used for advanced DRAM fabrication, the stock shortage for EUV photoresists will limit their production. In turn, that would hinder production of smartphones. About 1.4 billion smartphones were shipped in 2018, along with 300 million PCs, 150 million tablets and roughly 11.75 million servers. (I use market data provided by IDC).

The blame for this choking-off of supply, by Apple, HP, Dell and others, I believe will not necessarily fall to Korean DRAM suppliers, but to the Japanese government. After all, it is Japan that will have sparked the shortages with its export restrictions. The global electronics industry will be furious at Japan.

Influence of hydrogen fluoride

I originally thought that a shortage of EUV photoresists posed the gravest impact among the three chemical materials exported by Japan. This is because suppliers of EUV photoresists are limited to Japanese companies such as Shin-Etsu Chemical, JSR, Fujifilm and Tokyo Ohka Kogyo.

However, upon further analysis on semiconductor manufacturing process, I’ve concluded that a limited volume of hydrogen fluoride gas — rather than EUV photoresists — will have much more serious consequences for chip production.

Before getting into that, I’ll explain first how hydrogen fluoride (HF), or hydrofluoric acid, is used in semiconductor manufacture.

  1. In the cleaning process before depositing various metals including poly-Si, insulating film Hydrofluoric acid is used in a batch-type cleaning system capable of processing hundreds of wafers at a time. The chemical is diluted with a very high purity water called Deonized water (DI water) at a certain mixing ratio.

  2. In the cleaning process after CMP Hydrofluoric acid is mixed with ammonium hydroxide (NH 4 OH, so-called ammonia water). It is used for clearing batches.

  3. In the wet etching process of sacrificial film in double patterning The process uses a stock solution of hydrofluoric acid, deployed mainly by a batch-type wet etching system.

  4. In the backside cleaning process of wafer For example, to remove SiN attached to the back of a wafer, the clearing process uses hydrofluoric acid mixed with ammonium hydroxide (or the like). Each wafer is sprayed clean. The semiconductor manufacturing process consists of 500 to 1,000 steps, but the cleaning and wet etching processes are used in more than 10% of the entire production processes.

Cleaning that uses no hydrofluoric acid accounts for 30-40% of semiconductor fabrication steps. This well illustrates that as the node gets finer, the busier cleaning process gets. The point is to wash, wash and further wash wafers to remove any fine particles.

Then, each foundry deploys proprietary recipes for a mixing ratio of the cleaning solution, each strictly determined for every process. This results in the final yields at each foundry.

What happens if the hydrogen fluoride stock runs out?

Therefore, hydrogen fluoride is used in a tenth or more of the semiconductor manufacturing process. This chemical solution is applied to semiconductors ranging from logic devices to DRAMs, NAND flash devices and even OLED. In short, hydrogen fluoride is the acid indispensable for volume production of all chips.

Damage to NAND flash

Beyond the potential damage to production of applications processors and DRAMs, limiting Samsung Galaxy shipments, what about the impact on NAND Flash?

Figure 2 (see below) shows quarterly market shares among NAND Flash suppliers. In the first quarter of 2019, Samsung held the number-one share at a 39.4 percent. SK Hynix came in fifth at 9.5 percent, giving the two Korean companies close to half of the NAND Flash market.

This is substantially less than the 72.6 percent Korean cut of the global DRAM market, but it’s still a lot.

Yunogami_fig2_NANDflash

Global NAND Flash Market Share by Suppliers (Source: Takashi Yunogami based on data from DRAMeXchange)

Moreover, looking at quarterly shipment figures for solid-state devices (SSD) featuring NAND flash, Samsung has by far the highest market share at 33.4 percent. SK Hynix is third with a 9.9 percent. Together, the Korean companies make up 43.3 percent of the SSD market, as shown in figure 3.

Most likely, Samsung is supplying its SSDs in volume not just to PCs, but to servers used in data centers owned by cloud companies such as Amazon, Microsoft and Google. Given a recent trend for revived investment in data centers, cloud vendors will blame not Samsung but the Japanese government for any shortage of SSD supplies.

Yunogami_fig3_SSD

Global SSD Market Share by Suppliers (Source: Takashi Yunogami by compiling data from StorageNewsletter, TrendForcus, Business Wire)

Can’t they find replacement for Japanese-made hydrofluoric acid?

At the outset, we said that Korea is sourcing 41.9 percent of the hydrofluoric acid it needs from Japan. It gets 45 percent from China and 10 percent from Taiwan.

If the supply of hydrofluoric acid from Japan stops, presumably, Korea would be tempted to switch its sources to China and Taiwan.

But not so fast. First, material makers in China and Taiwan would be hard-pressed to double their volume in just one to two months.

Next, since the mixing ratio of hydrofluoric acid is strictly designed and determined for every process owned by each company’s fab, it is difficult for material manufacturers in China and Taiwan to immediately supply the hydrogen fluoride to the exact specifications Korean companies need.

If Korean companies tell chemical suppliers, “Just bring us whatever ‘hydro’ stuff you have,” chances are the yield rates of advanced logic, DRAM, and 3D NAND could dramatically plummet.

Because any given semiconductor fabrication process uses many steps requiring the use of hydrofluoric acid, the worst-case scenario would be that they would end up getting not even a single, good-quality device.

But the bad news for Japan is that in one or two years, these logistical issues will be solved, and chip companies will be able to fabricate all types of devices by using hydrogen fluoride supplied predominantly by China or Taiwan.

After all, the Japanese government dug its own grave

The Korean government announced on July 3 that it will allocate a budget of 1 trillion won (about US $850 million) annually to support domestic production of semiconductor materials and devices (reported by Nikkei Shimbun July 4).

Given that Korea can’t rely on Japanese-made raw materials, this is a reasonable policy.

In the long run, this announcement suggests that Korea will start systematically eliminating the use of raw chemical materials made in Japan, and Japanese semiconductor manufacturing equipment suppliers.

The result will be systemic replacement of chemical materials such as photoresists, chemicals, slurries, and wafers made in Japan, while Japanese semiconductor manufacturing equipment designed by such companies as Tokyo Electron, SCREEN, and Disco will be excluded from the deals.

At that stage, Korean companies will repeat what they did years ago by recruiting Japanese engineers. In the 1980s, Korea heavily headhunted engineers with advanced skills in designing DRAMs from Japan, which then commanded four-fifths of the global market.

Ultimately, both Japanese material makers and equipment vendors will lose the business they currently have with Samsung, SK Hynix and LG Electronics.

But this isn’t just about losing business. Japanese companies who have honed their skills by serving the top chip vendors in Korea will dull their competitive edge.

Even if the Japanese government decides to later lift its export restrictions, the retreat will likely come too late. The damage is already done. Once lost, it’s hard to regain trust in a business relationship. The Japanese government’s action has already done irreparable harm to the global electronics industry – at a price both incalculable and unnecessary.

The author Takashi Yunogami is a director of Fine Processing Institute.