South Korea: Former Samsung Executive Arrested For Stealing Trade Secrets To Build Copycat Semiconductor Chip Factory in China

South Korean prosecutors today announced that a former senior executive of Samsung Electronics has been arrested and indicted for stealing the chip behemoth's trade secrets to build a copycat chip factory in China.

According to the Suwon District Prosecutors Office, the 65-year-old former executive (whose name has not been disclosed) was charged with violating the industrial technology protection and unfair competition prevention laws. The arrested executive also had a stint with SK Hynix, another memory chipmaker.

The executive has been charged with illegally acquiring basic engineering data (BED) and process layout and design drawings, from August 2018 to 2019, in a bid to build a chip factory in the northwestern Chinese city of Xian between 2018 and 2019.

BED is a technology that ensures impurities do not exist in semiconductor manufacturing facilities. Process layout contains information on the floor plan and dimensions of a chip plant. The stolen secrets were seen as key to the manufacturing of sub-30-nano DRAM and NAND flash chips.

The former executive is said to have received an initial tranche of investment from a consortium of Chinese investors and even produced trial products from a chip manufacturing plant built based on technology stolen from Samsung. His company hired about 200 people from Samsung and SK Hynix. However, his plans failed to materialise as a Taiwanese entity backed out from its promise to invest $6.2 billion in the project.

Prosecutors said they estimated the data theft to have caused at least $23 million worth of losses to Samsung Electronics.

"It's a grave crime that could deal a heavy blow to our economic security by shaking the foundation of the domestic chip industry at a time of intensifying competition in chip manufacturing," the prosecutors' office said.

The prosecution also indicted six other people ― one employee of a Samsung Electronics subcontractor and five employees of a Chinese chipmaker set up by the former executive.

Both DRAM and flash memory chips are essential to smartphones, data centres, computers, cars and myriad other items.

Memory and storage form a significant portion of the global semiconductor industry, representing approximately 30% of the $460 billion semiconductor industry.

Samsung is the dominant player with a 41.7% share, followed by SK Hynix Inc. (30%).

S.K. Hynix operates a memory chip manufacturing facility in the eastern Chinese city of Wuxi. The Wuxi fab produces more than 40% of the company's DRAM chips, its primary business. S.K. Hynix has about 30% of the global market for DRAM.

Samsung's NAND flash production capacity in the Chinese city of Xian accounts for more than 14% of global capacity. Samsung holds about 30% of the global NAND flash memory market.

As part of its continued crackdown on China's chip industry, the U.S. has imposed a limit on the chip production capabilities of Samsung Co and S.K. Hynix Inc in China.