Trade Wars Battlefield Goes Beyond US-China

The US-China trade war shows no sign of abating. And as predicted, it is wreaking havoc on the electronics supply chain. While OEMs like Huawei get most of the headlines, suppliers of semiconductors are feeling the pain.

Even assemblers are getting caught in the crossfire: When the US government initiated a ban on doing business with Huawei, one of its EMS firms, Flex, withheld a reported $100 million in materials and shipments. According to some Chinese blogs, the OEM now plans to sever its business ties with Flex.

Less publicized, but perhaps just as crucial, is the ongoing spat between Japan and South Korea. The Asian nations are locked in a dispute over a group of uninhabited islands located in the straits between the two countries. Relationships are further frayed over issues of war reparations dating to World War II. Japan has struck first, taking steps to put controls on exports of key semiconductor fabrication materials to South Korea for fear they could be used in military applications. South Korea has not publicly countered, but the nation is home to two of the three largest memory device makers.

The tension between Japan and South Korea further complicates an already cloudy memory market picture. DRAM prices are already threatened by a global inventory glut, leading Gartner to forecast a 4% price drop this year. By choking materials supplies, Japan could inadvertently help lower inventories and boost margins. But there’s a point where parts availability could tip the wrong way, ratcheting up lead times and leaving buyers scrambling for sources.

By sales, Samsung and SK Hynix manufacture about 23% of the world’s memory chips. Their combined sales last year topped $110 billion. But there’s no simple answer. Japan is in many cases a sole source of many of these critical materials. How long will South Korea be willing to suffer? And what lengths will it go to to protect its semiconductor dominance?

What Goes Around

Taiwanese printed circuit fabricators are feeling the pain of the currency crunch as their South Korean competitors have been taking advantage of the cheap won (and, in the cases of Samsung and LG, the home court advantage) to woo new orders.

As of today, one Taiwanese dollar is worth 38.1 won, down from a 12-month high of more than 40 won but still up 4.4% from the low. In the cutthroat world of PCB pricing, a 4% or more currency advantage is huge.

What’s interesting, however, is that Taiwan has noted South Korea’s government is intervening to keep the won cheap, which is precisely the argument the US government has made against China with its currency.

Oh, and most major Taiwanese board fabricators have plants in China. Few South Korean fabs do.