Japan-South Korea tech spat

Analysts say the dispute could batter the global tech market and lead to price rises for consumers. (Reuters)
Updated 12 July 2019
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Japan-South Korea tech spat

  • Diplomatic row threatens output of components that drive smartphones and computer displays

SEOUL: A simmering diplomatic row with Japan is threatening South Korea’s output of components that drive smartphones and computer displays, which analysts say could batter the global tech market and hike prices for consumers. Tokyo last week said that it would restrict exports of three chemicals vital to South Korea’s world-leading chip and smartphone industry in an escalation of a decades-long dispute over Japanese forced labor during World War II.
And with the issue showing no sign of ending any time soon, there are worries it could also delay the rollout of 5G technology and futuristic folding screens.
“If this situation persists, there may be reductions in production, which will drive up memory (chip) prices and certainly drive up end-product prices in turn,” said Avril Wu, senior research director at Taipei-based market intelligence firm TrendForce.
While South Korea holds stockpiles, shortages could set in after three months, she told AFP.
South Korean President Moon Jae-in has called the situation an “unprecedented emergency” and told business leaders to prepare for a drawn-out crisis.
On Thursday, the country’s ruling party called for an extra budget of 300 billion won ($250 million) to help local firms survive the upheaval, more than double what the prime minister had asked for a day earlier.
With Japan so far refusing to negotiate, the news is bleak for top market players Samsung Electronics and SK Hynix. The two firms supply tech titans Apple, Huawei and Amazon, and together account for almost two-thirds of the world chip market, according to the Hana Institute of Finance in Seoul.
“South Korea is the world leader when it comes to chip-making, and Japan is the world leader in the manufacturing of the key materials for chip-making,” said Ahn Ki-hyun, vice president of the Korea Semiconductor Industry Association.
“With this trade row, Japan and South Korea are both losing the best partners. And neither of them will find good alternatives for a very long time,” he said. “Ultimately, this will bring a stagnation or regression of the world’s most cutting-edge technology. The price of gadgets may rise, as chips will likely be in short supply.”
Tech companies are already under pressure from a weakening global outlook, while the chip sector is particularly suffering from weak demand.
Japan’s new restrictions also apply to the transfer of manufacturing technologies as well as the three chemicals, removing them from a list that effectively allowed expedited shipments.

FASTFACT

2/3 - Huawei and Amazon together account for almost two-thirds of the world chip market.

It means exporters will now have to apply for permission for every batch they send to South Korea — a process that can take up to 90 days each time.
Len Jelinek, executive director of semiconductor research at IHS Markit, warned any reduction or elimination in the availability of the materials would “significantly impede” production.
“Because of the volume of chemicals required within the semiconductor manufacturing process, it is unlikely that the major chip suppliers will be able to find suitable quantities from suppliers outside of Japan,” he said.
Two of the chemicals targeted, hydrogen fluoride gas and photoresists, are essential to making memory chips, while the third chemical, fluorinated polyimide, is used for high-spec TV screens and smartphone displays, including in hotly anticipated folding models.
Japan reportedly produces some 90 percent of the world’s fluorinated polyimide, making it difficult for Korean companies to find alternatives elsewhere.
A Samsung official told AFP the firm was reviewing measures “to minimize further impact on our production” but declined to comment further.
Another key manufacturer LG Display said it had been testing fluorinated polyimide made in China and Taiwan to see if it can replace Japanese supplies if needed.
End-products that could be affected by Tokyo’s restrictions include Samsung’s Galaxy Fold — a top-end, foldable 5G smartphone that its makers hope will revive a sector struggling for new innovations. 5G networks offer radically quicker transfers of data and could enhance technologies such as autonomous driving, remote medical diagnosis and mobile payments.
In April, South Korea became the first country to launch nationwide 5G services, and in the same month Samsung rolled out its Galaxy S10 5G, the world’s first available smartphone with the technology built into it.
The smartphone giant has spent nearly eight years developing the Fold, whose planned release earlier this year was delayed because of screen problems.
But Park Jea-gun, an electronic engineering professor at Hanyang University in Seoul, warned that if the trade row continues it could impede such innovation.
“Reductions in chip production will slow everything down — including Internet-based businesses that seek to utilize 5G’s significantly faster download speed, and solid 5G gadgets. And this will hurt the world’s economy in the long run.”


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 19 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.