Loose Lips
Samsung Electronics (005930.KS) is a bit sensitive about its semiconductor IP and process technology and its suppliers are getting a taste of what that can mean if somethings leaks out. It seems that Samsung has sent a new confidentiality agreement to a number of its component suppliers last month that outlined stricter security measures concerning its more ‘delicate’ technology and potential fines (>$85,000 for each violation). While there were two ‘levels’ of contracts, the more stringent went as far as asking partners to notify Samsung if an employee leaves the supplier and winds up working for a Samsung competitor within a year. While this is something usually reserved for Samsung employees, the company is looking to track partner employees if they leave after working on a sensitive Samsung project, and is also asking that partner employees that previously worked for a Samsung competitor be excluded from sensitive Samsung projects.
While these requests might seem a bit overbearing, they are based in a healthy paranoia that Samsung developed after it was discovered that SK Hynix (000660.KS), the 3rd largest semiconductor foundry, discovered that its wafer cleaning tool supplier Mujin Electronics (pvt), from whom it had bought between 350 and 400 such tools, had decided to sell that same tool, which had been developed in conjunction with Samsung Electr0-Mechanics (009150.KS), to a Chinese semiconductor competitor, Changxin Memory Technologies (pvt), which did not sit well with SK Hynix or the Korean courts who jailed the Mujian executives that made the sale.
SK Hynix was forced to ask other suppliers to develop wafer cleaning tools to replace Mujian, but was forced to continue to buy from Mujian given the long development time for alternative suppliers. Samsung, SK Hynix’s major competitor, forced Hynix to remain with the vendor who sold their co-developed technology to a competitor, withholding the SEMES tool after the leak, and also ended its distribution contract with Mujian (see our 01-29-21 note for details).
This obviously made an impact on Samsung, who ended its who seems to be reminding its suppliers that proprietary technology is exactly that, and risking a lucrative contract with the 2nd largest semiconductor foundry by allowing an employee to leak information to a competitor is a big mistake. While we expect competitors would pay premium prices for a tool that would give them an edge over Samsung, the cost of that sale would likely be far more than a fine of $85,000 and its discovery would end its contract with Samsung. Perhaps the new confidentiality agreements are a bit over the top, but it is easy to see that Samsung’s concerns are real and that suppliers either comply or risk losing what could be their largest customer.
While these requests might seem a bit overbearing, they are based in a healthy paranoia that Samsung developed after it was discovered that SK Hynix (000660.KS), the 3rd largest semiconductor foundry, discovered that its wafer cleaning tool supplier Mujin Electronics (pvt), from whom it had bought between 350 and 400 such tools, had decided to sell that same tool, which had been developed in conjunction with Samsung Electr0-Mechanics (009150.KS), to a Chinese semiconductor competitor, Changxin Memory Technologies (pvt), which did not sit well with SK Hynix or the Korean courts who jailed the Mujian executives that made the sale.
SK Hynix was forced to ask other suppliers to develop wafer cleaning tools to replace Mujian, but was forced to continue to buy from Mujian given the long development time for alternative suppliers. Samsung, SK Hynix’s major competitor, forced Hynix to remain with the vendor who sold their co-developed technology to a competitor, withholding the SEMES tool after the leak, and also ended its distribution contract with Mujian (see our 01-29-21 note for details).
This obviously made an impact on Samsung, who ended its who seems to be reminding its suppliers that proprietary technology is exactly that, and risking a lucrative contract with the 2nd largest semiconductor foundry by allowing an employee to leak information to a competitor is a big mistake. While we expect competitors would pay premium prices for a tool that would give them an edge over Samsung, the cost of that sale would likely be far more than a fine of $85,000 and its discovery would end its contract with Samsung. Perhaps the new confidentiality agreements are a bit over the top, but it is easy to see that Samsung’s concerns are real and that suppliers either comply or risk losing what could be their largest customer.
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