The semiconductor industry is a model of globalization, with a few countries playing key roles. Japan is a source of advanced materials and automation necessary for fabs to operate, and is perhaps the most important part of this structure. The modern fab depends on robots and materials and Japan has a dominant presence.
This dominance is part technical, part trade. And trade is all about currencies.
USD.KRW bottomed on 11/30/20 at 1085 KRW to the USD. USD.KRW surged to 1347 today, 8/30/22. It has been setting new highs every week for years, and it’s now 24% higher than 11/30/20.
USD.JPY bottomed later than KRW, on 12/28/20, at 103. Since then USD.JPY has been on an epic rise to near new highs on 8/30/22, at 138. It has been less of a consistent rise with some corrections along the way to 34% rise since the end of 2020.
USD.CNH (Offshore Renminbi) has maintained the peg to the USD within a 6.9-7.1 range over the same period.
This brings me to Korea. Korean vendors have certain niches in materials and equipment like Japan that can be exploited when the Won falls.
So US or Chinese fabs purchasing Korean or Japanese goods in Won or Yen have a growing advantage that is leading to more fab construction in these locations. A 24-34% cost reduction for top quality goods is irresistible, both economically (it is worth billions over the life of the fab) and, I think, emotionally (FOMO). Conversely, building fabs in Korea, which was a popular location for many years, is less favorable.
This season of USD strength may not last, but the effects of it will be long lasting. The most interesting implication, I think, is how China and Japan cooperation can be mutually beneficial. There is a need to establish and maintain trust however.
On the topic of trust: Japan has never built a fab in the US, and Toshiba fended off Western Digital when establishing Kioxia to maintain Japanese control. This is another interesting aspect of the globalization dynamic: Cooperate on one level, compete on another. It's important to always keep this dual dynamic in mind when discussing US-China as well.
This dominance is part technical, part trade. And trade is all about currencies.
USD.KRW bottomed on 11/30/20 at 1085 KRW to the USD. USD.KRW surged to 1347 today, 8/30/22. It has been setting new highs every week for years, and it’s now 24% higher than 11/30/20.
USD.JPY bottomed later than KRW, on 12/28/20, at 103. Since then USD.JPY has been on an epic rise to near new highs on 8/30/22, at 138. It has been less of a consistent rise with some corrections along the way to 34% rise since the end of 2020.
USD.CNH (Offshore Renminbi) has maintained the peg to the USD within a 6.9-7.1 range over the same period.
This brings me to Korea. Korean vendors have certain niches in materials and equipment like Japan that can be exploited when the Won falls.
So US or Chinese fabs purchasing Korean or Japanese goods in Won or Yen have a growing advantage that is leading to more fab construction in these locations. A 24-34% cost reduction for top quality goods is irresistible, both economically (it is worth billions over the life of the fab) and, I think, emotionally (FOMO). Conversely, building fabs in Korea, which was a popular location for many years, is less favorable.
This season of USD strength may not last, but the effects of it will be long lasting. The most interesting implication, I think, is how China and Japan cooperation can be mutually beneficial. There is a need to establish and maintain trust however.
On the topic of trust: Japan has never built a fab in the US, and Toshiba fended off Western Digital when establishing Kioxia to maintain Japanese control. This is another interesting aspect of the globalization dynamic: Cooperate on one level, compete on another. It's important to always keep this dual dynamic in mind when discussing US-China as well.
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