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Japanese-Korean tensions could cause global memory and storage drought

Clampdown on tech exports could choke component supply

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Increasing political tensions between Japan and South Korea could lead to a global shortage of memory technology like SSDs and flash chips, a UK channel firm has warned, as manufacturers are left without access to the raw materials necessary to create them.

The potential shortage is the result of new trade restrictions imposed by Japan on neighbouring South Korea. South Korean officials have accused Japan of implementing the controls in retaliation for a South Korean court decision, which ordered Japanese companies to compensate South Korean workers for their World War Two-era forced labour practices.

Japan has tightened the export controls on a number of raw materials used in the construction of high-tech components like chips and semiconductors, meaning that Japanese companies who wish to export these materials to South Korea must obtain an export license for each separate shipment. Reuters reports that since the restrictions have been tightened, just two such shipments have obtained government clearance.

The impact of these sanctions is likely to be felt fiercely by the global tech industry if they continue. South Korea produces a huge amount of the world's memory components through manufacturing giants like Samsung and SK Hynix, including 70% of DRAM chips and roughly 50% of its 3D NAND. While rival memory-manufacturer Toshiba may ordinarily have been able to capitalise on this, it was also hit last month by a power outage in one of its Japanese facilities that reduced its Q3 NAND output by around half.

In terms of DRAM, analysts do not expect the trade restrictions to lead to a shortage of supply or a spike in component prices, due to the amount of stock that suppliers generally have on hand.

"Looking back at supply, we see DRAM suppliers generally sitting at over 3 months' worth of inventories," market analysts TrendForce wrote, "leading to a continual sliding of contract prices for PC, server and mobile DRAMs at the beginning of 3Q with no signs of reversal as of yet. TrendForce thinks the possibility of a structural reversal of supply and demand in the DRAM market to be slim."

Flash storage, on the other hand, may prove to be more of a concern. A shortage of NAND chips could see price increases and stock shortage for SSDs and Flash appliances, affecting everything from laptops and smartphones to servers and storage arrays. Novatech, a UK-based channel vendor, has already stocked up on components in preparation for a potential drought.

"The net result [of the restrictions] is that demand is outstripping supply" said Daryl Farmer, Novatech's purchasing manager. "We have already seen a sharp rise in SSD costs from manufacturers over the last few weeks, and have taken the decision to obtain significant volumes of stock in order to protect our customers, and help keep the costs down on our pre-built systems."

While its prediction is that NAND prices will be driven down in the long run, TrendForce has also warned that continued inventory pressure could lead to spikes.

"Since wafer quotes are already a bit low, July is forecast to see rising quotes beginning from July," it wrote. "But considering the fact that suppliers generally have two to three months' worth of inventories in their possession, most module manufacturers won't be raising prices immediately from the get-go. Whether transaction prices will rise in the future still depends on the market and inventories on the supply side."

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