"When in Need, There Is a Way"... Semiconductor Materials, Parts, and Equipment Companies' 'Successful Escape from Japan' [3 Years of Japan's Export Restrictions]

Cumulative Japanese Imports in Materials, Parts, and Equipment Sector Hit Record Low of 15.6% in Jan-May
Asple, Localizing Semiconductor Pipeline Parts, Re-exports to Japan
Exicon Achieves First Domestic Localization of Non-Memory Inspection Equipment
PSK Localizes US Equipment... Comprehensive Domesticization Achievements Emerge

"Localization of Materials, Parts, and Equipment is a Long-Term Task Taking at Least 10 Years... Careful Evaluation Needed"
Global Supply Chain Crisis... Worldwide Competition to Attract Semiconductor Materials and Parts
Now Time to Consider 'Self-Sufficiency' Beyond 'Localization' for Economic Security

The Yoon Suk-yeol administration has been emphasizing the development of the semiconductor industry day after day. Recently, Deputy Prime Minister for Economy Choo Kyung-ho (photo right) visited the Seoul National University Semiconductor Joint Research Center and toured the experimental equipment.
[Image source=Yonhap News]

[Asia Economy Reporter Kwak Minjae] For decades, we have relied on Japan for 80-90% of parts such as tubes, valves, and filters used in gas supply devices for semiconductor processes. At least until June 2019, that was the case. After Japan's retaliatory export restrictions in July of the same year, Aspro, a semiconductor piping parts manufacturer, succeeded in domesticating these parts. Before the export restrictions, domestic production was unthinkable. Semiconductor giants like Samsung Electronics and SK Hynix had no reason to use Japanese products, whose reliability and quality were already verified, making it difficult even to get testing opportunities (reliability verification).

As the saying goes, "Necessity is the mother of invention." Opportunities have come to small and medium-sized enterprises (SMEs) in materials, parts, and equipment (MPE) that had to give up productization despite having technology because they lacked chances for verification. Park Manho, head of Aspro's research institute, said, "Previously, even if we explained that our technology was on par with Japanese products, there were hardly any opportunities to verify this. After the export restrictions, we were given verification opportunities and were able to verify and commercialize all 13 valve items."

Japan's Export Restrictions: An Opportunity for Domestic MPE Companies

Aspro has been supplying these parts to domestic semiconductor giants since this year. In the past, most of these were Japanese products. The gasket filter, which can be installed in the IGS (Integrated Gas Management System) modules imported from Japan, is considered a successful case of semiconductor parts localization to the extent that it is even re-exported to Japan. The gasket filter is a part used to precisely control gas. The filter is expensive, costing tens of thousands of won per unit. For Aspro, Japan's export restrictions became an opportunity. While sales were 40.4 billion won in 2019, they recorded 58.6 billion won in 2021 and are targeting 85 billion won this year. Compared to 2019, this year's sales will more than double.

Tubes were also entirely imported from Japan. After Japan's export restrictions, there was awareness of the need to localize them, and Aspro succeeded in development with support from the Ministry of Trade, Industry and Energy, collaborating with SeAH Changwon Special Steel, Korea Institute of Materials Science, Korea Institute of Industrial Technology, and Korea Aerospace University. It took two and a half years to localize these. Currently, three items are undergoing demonstration verification tests.

Asplo headquarters, a semiconductor piping parts manufacturer located in Hwaseong, Gyeonggi.
[Photo by Asplo]

Exicon, which develops and produces quality inspection equipment for semiconductors, has also achieved localization of semiconductor non-memory inspection equipment in the past three years. After Japan's export restrictions, the government and semiconductor companies promoted localization of non-memory test equipment. Exicon quickly researched non-memory test equipment, started a national project, completed development in March this year, and is currently awaiting final customer approval for mass production. CIS (CMOS Image Sensor) inspection equipment had a high dependence on Japanese imports. All domestic major companies used products from the Japanese equipment company Advantest. Park Jongsu, deputy general manager of Exicon, explained, "This is the first domestic localization case of non-memory inspection equipment, which had relied solely on imports until now," adding, "It has price competitiveness compared to Japanese products, so it is expected to reduce the price burden on customers."

There is also a case of domestic localization of equipment that was 100% monopolized by an American company. Lim Jihong, manager at PSK, the world's number one company in semiconductor photoresist cleaning equipment, said, "After Japan's export restrictions, interest and support for localization of MPE companies from customers increased, and thanks to this situation, we succeeded in localizing the 'Bevel Etcher' (inclined surface etching equipment), which was 100% imported from the American company Lam Research." The Bevel Etcher is equipment mainly used in the semiconductor front-end process to improve yield. There were many difficulties in localizing it as a latecomer, not previously produced domestically. Especially, creating patents and developing processes were challenging. Although there had been plans for localization of the Bevel Etcher before, full-scale localization began after Japan's export restrictions, leading to success.

Lim said, "This was possible thanks to Samsung Electronics' active support and close collaboration." PSK has been supplying equipment to Samsung Electronics since last month. PSK also received support from SK Hynix through the Semiconductor Industry Association's 'Semiconductor Performance Evaluation Project.' Initial mass production sales occurred to SK Hynix this year. Localization of semiconductor equipment is expected to reduce overseas dependence.

This Year, Overall Japanese Dependence on MPE Hits Lowest in 21 Years

After Japan resumed exports, dependence on Japan for three major items?high-purity hydrogen fluoride, fluorine polyimide, and extreme ultraviolet (EUV) photoresist?rose again. Semiconductor equipment imports also increased, but that does not mean there were no achievements over the past three years. Three years after Japan's export restrictions against Korea, Korea's dependence on Japan in the materials, parts, and equipment sector reached an all-time low this year.

According to the Ministry of Trade, Industry and Energy's MPE Net, among Korea's cumulative imports of materials, parts, and equipment totaling $107.214 billion from January to May this year, Japanese products accounted for $16.739 billion, or 15.6%. This is the lowest level in 21 years since related statistics began in 2001. The import share of Japanese products was 16.9% in 2019, 17.2% in 2020, and decreased to 15.9% last year. From January to May this year, it accounted for 15.6%.

An official from the Ministry of Trade, Industry and Energy said, "Although Japan's export restrictions in 2019 (16.9%) led to a slight temporary increase in Japanese dependence in 2020 (17.2%), it is necessary to consider that the effects of policies are not immediately visible in the same year," adding, "As the government's rapid R&D support and amendments to the MPE Act took effect over time, technological independence in MPE, including the three core items and Japan overall, has increased."

An Ki-hyun, executive director of the Korea Semiconductor Industry Association, said, "Localization or diversification of imports in MPE is not something that can be achieved in about three years; it takes at least 10 years," adding, "It is not appropriate to evaluate achievements simply based on the current situation." If technological independence had been possible in about three years, the increase in Japanese dependence and resulting subordination would not have occurred in the first place. An explained, "Hydrogen fluoride used in semiconductor and display etching processes and fluorine polyimide, a monitor film material for foldable phones, have already been localized, and I understand that significant development has been made in EUV photoresist."

COVID-19 and War Shake Global Supply Chains... Worldwide Competition to Attract MPE Companies

The US-China hegemony war, the COVID-19 pandemic, and the Ukraine war have triggered a global supply chain crisis. Initially, efforts for technological independence in MPE began due to Japan's trade retaliation and export restrictions, but amid the global supply chain crisis, semiconductor MPE is gaining importance not only from the perspective of localization but also self-sufficiency. Recently, semiconductor shortages have increased demand for manufacturing facilities domestically, and equipment demand has surged accordingly.

From the perspective of economic security, the safest approach is to secure manufacturing facilities domestically, leading to global competition to attract MPE companies. The EU Semiconductor Act is a representative example. European countries, which had focused on semiconductor design and software, are now actively fostering semiconductor manufacturing. This is based on the judgment that semiconductor manufacturing can no longer be entrusted externally amid the global supply chain crisis. Incentives to attract semiconductor factories are also being strengthened. Intel, which plans to establish new semiconductor factories and research centers in Germany and Ireland, is reportedly receiving 6.8 billion euros (about 9.28 trillion won) in semiconductor support funds from the EU this year. Meanwhile, Korea's investment in semiconductor MPE still has a long way to go.

Kim Taehwang, professor of International Trade at Myongji University, said, "In the past, it was sufficient to localize only Japan's three major regulated items, but today, as the global supply chain crisis intensifies, attention must be paid to semiconductor MPE self-sufficiency to manage all-around risks from the US, China, Japan, and others," adding, "It is necessary to strengthen alliances in the global supply chain while simultaneously enhancing response capabilities across all semiconductor fields through long-term support for domestic MPE companies."