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 said last week 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 labour during World War II.
With the issue showing no sign of ending any time soon, there are worries it could 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 Ms Avril Wu, senior research director at Taipei-based market intelligence firm TrendForce.
While South Korea has stockpiles, shortages could set in after three months, she said.
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 account for almost two-thirds of the world's chip market, according to the Hana Institute of Finance in Seoul.
"South Korea is the world leader when it comes to chipmaking, and Japan is the world leader in the manufacturing of the key materials for chipmaking," said Mr 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 added: "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 suffering particularly from lower demand.
Japan's new restrictions apply to the transfer of manufacturing technologies, as well as the three chemicals, removing them from a list that effectively allowed expedited shipments.
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.
Mr Len Jelinek, executive director of semiconductor research at IHS Markit, warned that 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 in 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 per cent of the world's fluorinated polyimide, making it difficult for Korean companies to find alternatives elsewhere.
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 innovations.
5G networks offer radically quicker transfers of data and could enhance technologies such as autonomous driving, remote medical diagnosis and mobile payments.