February 3, 2010 – Authorities in South Korea have arrested executives from Hynix Semiconductor and Applied Materials’ local office, accusing them of illegally transferring key semiconductor process technology from Samsung.

According to various domestic news reports (Yonhap, Korea Herald, Korea Times), 95 "core" memory technologies about DRAM and NAND flash, as well as plans for next-generation chip technology "– possibly including 3Xnm class process tech — allegedly were obtained during equipment installation/maintenance and leaked by an Applied Materials Korea (AMK) executive identified as surname "Kwak" and another AMK official; an unidentified "former Samsung senior researcher" who later joined AMK is being sought by prosecutors. Several other individuals have been booked without being detained.

Thirteen of those 95 technologies allegedly found their way to Hynix over a four-year span (March 2005-Dec. 2009); a Hynix official identified as surname "Han" was also indicted for receiving the leaked information, according to the news reports. Prosecutors allege that the leaks caused "direct losses of hundreds of billions of won" (hundreds of millions of US$) and "indirect loss of trillions of won" (hundreds of US $B). Hynix denies the charges, saying that it’s not using any of Samsung’s copper-based processing technology, and that there’s a time gap between acquiring information and ramping it into manufacturing.

Applied’s statement on the affair, in a SEC filing, acknowledges "alleged improper receipt and use of a customer’s confidential information" and indictment/arrest of "employees of several companies," including the former head of its Korean unit (now an AMAT VP) — but claims "there are meritorious defenses to the charges" and the company "is taking appropriate measures to address this matter."

Early fallout from the allegations has concerns flying everywhere. "This case reveals that while memory chip makers have maintained tight security against competitors, business partners like equipment companies have had relatively easy access to trade secrets," said a spokesperson for the prosecutor’s office. A Samsung spokesperson says the company is "concerned about the national loss as core technologies of semiconductors" that allegedly "have been leaked via a U.S. equipment maker," raising concern of not just domestic problems but also overseas as well, notes the Korea Herald. Hynix, too, seems concerned enough that it too has filed a petition with the Seoul Eastern District Prosecutor’s Office, asking for a similar investigation whether its own secrets have been compromised.

And even with more questions than answers at this point, AMAT is likely to feel some heat from investors. "There’s headline risk associated with this because Samsung is a big customer of Applied Materials, and so is Hynix, and any strain on that relationship would be viewed negatively by the Street," said Pacific Crest Securities analyst Weston Twigg, quoted by Reuters.