Trade Wars and the Shifting Supply Chain Landscape

Having spent almost 23 years at Smith, the world’s largest open-market distributor of electronic components, I’m no stranger to market disruptions and shifting supply chain dynamics. In this blog post, I share my perspective on the supply chain ramifications of the Japan-South Korea trade dispute and how Smith can help navigate these complex situations with valuable market insight.

The dispute between Japan and South Korea is the latest in a series of worldwide trade feuds. As the U.S.-China trade dispute continues to unfold, tensions between these two East Asian countries are now rising to the surface.

On July 1, Japan announced that it would place extended export restrictions on specialty materials crucial to South Korea’s technology sector. Effective July 4, Japanese companies must receive permission to export these materials to South Korean businesses, which will now take about 90 days to complete.

The materials in question – fluorinated polyamides, photoresists, and hydrogen fluoride – are required to produce semiconductors. Essentially, these new requirements make it very difficult and prolong the process for South Korean companies to receive the special materials they need for memory chip and LCD production.

There is no doubt that these restrictions will affect the global memory chip market. Especially since Japan produces around 90% of the world’s supply of fluorinated polyimide and resists and roughly 70% of its hydrogen fluoride. On top of that, South Korean memory manufacturers Samsung and SK Hynix together control over 63% of the global memory market, and both companies rely heavily on these chemicals from Japan in their production processes.

Almost immediately, Smith has seen memory prices increase across the board in response to supply and market uncertainty. Samsung and SK Hynix have officially raised pricing by 10-30% for all memory products, including DRAM, flash, eMMC, RDIMMs, and PC modules. Both memory manufacturers will also prioritize making and selling server memory over PC and consumer memory.

From my experience, customers should stay vigilant of shifting pricing dynamics on memory products until the current geopolitical climate calms and its conflicts are resolved. I have advised Smith’s customers to review their bills of materials (BOMs) and determine where risk exposure might be present.

Forecast planning and evaluation of current memory inventory levels are the keys to staying proactive during this time. Due to the uncertainty of memory pricing and supply, customers may have to qualify other manufacturers and expand their AVLs to keep their lines running according to forecast. Having a contingency plan in place with a trusted partner is an essential strategy to navigate this trade dispute.

Only time will tell how long the strife between Japan and South Korea will last. It is clear, though, that these tensions have impacted the memory market and have major U.S. tech giants concerned. Apple, Amazon, Google, and Microsoft have all sent executives to South Korea to gauge supply and market conditions. The companies are specifically concerned about the trade dispute’s impact on Samsung’s DRAM supply.

Before the trade dispute began, Samsung and SK Hynix had about 60-90 days of inventory in production and on-hand. As a result of the ongoing tensions, Samsung has decided to test compounds from other vendors outside Japan.

The politics surrounding the Japan-South Korea trade dispute have the potential to significantly impact memory production and part availability. I advise customers to monitor the situation closely and work with Smith to gain full insight into the potential effects that pricing may have on their production lines.