South Korea's Semiconductor Industry: Challenges and Strategic Imperatives

South Korea must strategically enhance its semiconductor industry to maintain global competitiveness and avoid economic decline.

### Semiconductor Crisis: South Korea's Challenges and Future Strategies
* 📉 Apple has completely abandoned TSMC, and Qualcomm is also at risk of leaving, leading to a **semiconductor crisis in South Korea**, while TSMC remains strong and Samsung struggles.
* 🇺🇸 The United States has almost monopolized advanced technology, demonstrating a **genuine commitment to technological advancement**, which necessitates a **strategic shift towards hegemonic power**.
* 📊 South Korea's economy appears to be on a downward trend, with a lack of top positions in the **64 advanced technology sectors**, where China leads in **53**.
* 💻 Despite holding a **70% market share** in memory semiconductors, South Korea faces challenges as competitors like Micron **catch up** in the semiconductor market.
* ⚙ TSMC dominates the foundry market with a **70% to 80% share**, while Samsung struggles to keep pace, leading to significant clients like Qualcomm shifting their orders **away from Samsung**.
* 💰 The semiconductor market is projected to reach **one trillion dollars by 2030**, highlighting its critical role in modern life, with semiconductors embedded in **essential devices**.
* 🔧 To maintain leadership, South Korea must focus on its strengths in **semiconductor production** and invest strategically in **advanced industrial technology**, drawing lessons from historical examples like **Nokia**.
* 🌍 The U.S. government’s commitment to science and technology underscores the need for South Korea to **support its semiconductor industry at a national level** to **escape its economic stagnation and rise as a developed nation**.

Apple has completely abandoned TSMC, and Qualcomm is also at risk of leaving, leading to a semiconductor crisis in our country. It seems that TSMC is still running comfortably, but Samsung is struggling to keep up. In fact, the United States is the world's hegemon and has almost monopolized advanced technology. This is not a coincidence; the United States is genuinely committed to technology. Therefore, the strategy of a strong country must completely shift towards hegemonic power. As knowledge increases, we become smarter. You may have heard of the term Peak Out Korea, which suggests that the South Korean economy has now entered a downward trend after reaching its peak. Some people argue that this is a bias against the South Korean economy, but it is indeed the case. If we look at the economic growth rate of South Korea over the past 30 years, we can see the performance of each government and president.

I have been continuing my research on the village of Imgi. I looked into the 64 advanced technology sectors and found that China is already ranked first in 53 of those sectors, while our country does not hold the top position in any of them. What does this mean? It means that the growth engines of our country are dying out. It indicates that new growth engines are not emerging. 

Hello, I am Kim Tae-yu, an emeritus professor at Seoul National University’s Department of Industrial Engineering, and Kim Chang-guk, a partner at the Boston Consulting Group. We are performing well in one part of the immense technology value chain known as semiconductors, but we are not excelling in the whole field. The fundamental technologies are all held by the United States. In terms of materials, components, and equipment, Japan, the United States, and the Netherlands dominate. We then split into foundry and DRAM, and we are only good at producing DRAM. We are facing tremendous challenges and trials.

There is a worrying situation where I wonder when we will lose our dominance in memory. In fact, South Korea is indeed a stronghold in memory production. If we include Samsung and Hynix, our country holds about 70% of the market share. According to a well-known report from IDC, Samsung Electronics ranked first in semiconductor sales, while Hynix ranked third, showing a twofold increase in sales compared to the previous quarter. Additionally, in the case of HBM, Hynix has been announced as having a unique position in the market. 

However, the issue that needs to be raised from here is that in the past, Micron would launch products at least six months to a year later than Samsung and Hynix. But now, Micron has caught up significantly in competitiveness, and recently, they have started to release very similar products almost simultaneously. This indicates that a crisis is emerging for our country's semiconductor industry. There are two areas where our semiconductors are still dominant, as I mentioned earlier.

There are memory semiconductors, and then there is the foundry sector. In the memory semiconductor market, Samsung and SK Hynix together hold a 70% share globally. Samsung Foundry is the only company, after TSMC, that can produce advanced nodes below 14 nanometers. The main issue with memory is how quickly it can be produced according to the customer's needs. For example, when supplying to Apple, if Samsung is ranked first, they might say, You will supply 50% to me. Then, if Hynix comes in second a month later, they might say, You will supply 30%. If Micron comes in third after six months, they would then supply 20%. This means that Micron's supply volume is relatively small. Additionally, when semiconductors are initially mass-produced, the yield is usually around 80%. However, Micron is coming in six months later.

Samsung and Hynix already have a yield of 95%, while Micron had 80%. This means that Micron's costs are higher due to their lower yield. However, they have been catching up quickly, and now the pace of advancement is slowing for us while it is accelerating for them. Micron was the first to release the 8-high stack 24 GB HBM3 into the market in July of last year. As a result, due to the effect of competitors catching up, we are facing a crisis. It has become more difficult for us to make money and maintain our top position as we did in the past. This is the first issue. The second issue is foundry. What other semiconductors does our country excel in? Within foundries, only two companies can produce chips at a node smaller than 14 nanometers: TSMC and Samsung. So, there are only two companies, but the problem lies in market share. TSMC holds 70% to 80% of the market.

Recently, you may have seen several news reports about our country, particularly regarding the 20% share of the semiconductor market. There have been discussions about Samsung's failure with the 3-nanometer process and how TSMC has gained a significant advantage. TSMC continuously advances to the next generation, releasing new products every year. They had 5-nanometer technology two years ago, 4-nanometer last year, and now 3-nanometer this year. This rapid innovation, advancing one step each year, is remarkable. However, it seems that TSMC is still moving forward comfortably, while Samsung is struggling to keep pace. For instance, last year, Qualcomm announced that they would stop allocating orders to Samsung Foundry this year. The reason for this decision was that the quality expected from the nanometer process was not being met, prompting Qualcomm to turn to TSMC instead. Originally, both Apple and Qualcomm relied on Samsung, but now they are shifting towards TSMC.

For a year, we deliberately engaged in competition by alternating years, but now Apple has completely gone with TSMC, and Qualcomm is on the brink of a departure. This industry now requires us to continuously invest 20 to 30 trillion won each year, step by step, and it is becoming increasingly difficult. So, is there no way for us to protect our interests while narrowing the gap with developed countries? This is indeed a very important issue. The solution lies in what we excel at, which is semiconductors. We should focus on semiconductors. I argue that if we concentrate on what we do well, we will become even better at it. There is a historical example: the Netherlands is a very special country. Its land area is just 40,000 square kilometers, which is only about one-fiftieth of the Korean Peninsula, making it a very small country. Yet, at one time, the Netherlands became one of the three global powers. What happened?

After that, the North Sea herring fishing grounds were formed. So, to catch herring, everyone from England, the Netherlands, Germany, and France rushed in. However, the Netherlands completely triumphed. Why? Because while fishermen from other countries would catch herring, sell it, and then catch more to sell again, the Netherlands essentially focused their entire society on herring fishing. They created dedicated herring fishing boats and sent them out to catch herring. As soon as they caught the fish, they salted them. They also brought in fast boats. At one point, more than half of the Dutch population was involved in industries related to herring fishing, making the Netherlands a true herring fishing nation. So, how does catching herring well lead to becoming a developed country? The truly important fact here is that catching herring...

In order to catch herring, they established a fishing ground and created a fast vessel. It turned out that the shipbuilding industry was rapidly developing, and they became a great shipbuilding nation, producing excellent ships. Because they made good ships, they were also able to produce trade vessels very well. When we consider a ship weighing about 250 tons, the British trade ship required around 30 crew members to operate. However, the trade ship created by the Dutch, known as the fluyt, only needed about 10 crew members. This reduced labor costs to a third. As a result, the British had no way to compete with the Dutch. The Dutch ships were more efficient, so they started selling ships and directly engaging in shipping. They ventured into shipping and monopolized the trade of spices, such as pepper, cloves, and nutmeg, which at the time were referred to as black gold. So what this means is...

If we create a significant gap by excelling in one area, new industries will emerge from that gap. This is what we call technology spillover; technology keeps overflowing and leads to the creation of new industries. Strong nations have large territories and populations, which means they have many researchers and a large consumer base once products are developed. Therefore, they need to focus on balanced development of technology. However, our country is a small but strong nation. This means we have fewer researchers and consumers, so we can't excel in producing every product. Even if we create something, the market isn't large enough. Thus, rather than trying to produce products we are not good at, we should focus on improving the products we can make well and find breakthroughs from there. The strategies of strong nations and small but strong nations are different, and so our strategy as a small but strong nation is...

We need to become better at what we do. If we invest more and focus more, we can definitely succeed. Currently, the total revenue of the semiconductor market is about 600 billion dollars. Experts predict that by 2030, it will reach one trillion dollars. This is a business that always experiences double-digit growth. In the past, we used to refer to the basic necessities of life as food, clothing, and shelter, but now I call it food, clothing, and devices. The term devices signifies that these have become essential items in our lives. For instance, whether we are driving a car or flying on an airplane, we rely on various devices. What we often overlook is that a significant amount of semiconductors is embedded in these devices. In particular, the amount of semiconductors in a car can range from 400 to 600 dollars.

The cost of semiconductors is about 4% to 6% based on the cost price. This means that semiconductors are now considered essential goods in our daily lives, just like food, clothing, and shelter. Another point is that when I produce something, it means I am self-sufficient. The importance of self-sufficiency has grown significantly. Many of you may have experienced this: in the past, when you wanted to buy a car, you could get it right away. However, during the COVID-19 pandemic, cars suddenly stopped being produced for a year. This was due to a lack of semiconductors. During the pandemic, it became clear that without semiconductor production in our country, I wouldn't be able to buy what I really needed when I needed it. If our country doesn't sell them, we can't produce them, which was a challenging time. This situation created a fear that countries could use semiconductors to exert pressure on each other. If we lose semiconductor dominance, we will fall behind in various industries.

The concern is that we will either follow or become dependent on imports, which is problematic. This is why we see the emergence of semiconductor production facilities and friend-shoring initiatives. Strategically speaking, even though we are good at semiconductor production, we cannot maintain a monopoly or hegemonic position on our own; we must work together for mutual growth. Even countries like the United States need to collaborate for co-prosperity. 

So, to avoid losing our leadership, what kind of strategy should we devise? It's a tough question. Ideally, we should do both. However, given the current situation, the U.S. is making efforts to bring in chips that are already being produced. By doing so, they believe they can control something in their territory if issues arise later. The first point is...

The second important topic is about talent. It ultimately comes down to the expertise that people possess, including the know-how related to semiconductor production. For example, if a memory plant is established in the U.S., and if the people there stay for a long time, the talent pool will eventually shift to other companies within the U.S. This creates a strength in continuously enhancing their proprietary know-how. On the other hand, if I say that I will nurture a semiconductor company in this country, the current reality is that 90% of new semiconductor startups are foundries. Why? Because there are Qualcomm, NVIDIA, and many others. In fact, aside from the U.S. foundries, there are only a couple in Taiwan that can generate over $3 billion in revenue. Most startups cannot initiate production in important sectors. Therefore, no matter how strong the incentives the government provides,

Even if we provide support, it takes too long for such companies to grow and contribute to the semiconductor ecosystem of their country. Therefore, when attracting investments that can produce larger quantities, all countries are focusing heavily on direct incentives. We are also implementing the K-Chips Act, but we don't offer direct incentives for investments, which I always argue is the least effective approach. We are currently moving towards a corporate tax-centered strategy. Why is the effect of corporate tax weak? Because corporate tax is paid after generating sales and profits. However, our semiconductor production needs to be advanced in preparation for next year. Since corporate tax comes into play afterward, it holds very little significance. Regarding today's topic, we have received questions in advance from our subscribers about how national strategy is involved in fostering industries, which ultimately requires government financial input, particularly for semiconductor companies.

Although it is a large corporation, should the government support companies? The importance of advanced industrial technology does not lie in helping specific private enterprises. Countries that genuinely invested in advanced industrial technology have all succeeded and become advanced powers, while those that did not have faced significant difficulties. For example, there was once a company called Nokia in Finland. Nokia accounted for 25% of all exports from Finland and 70% of the market capitalization of Helsinki. At that time, people said that if Nokia failed, Finland would fail too. But Nokia did fail. However, it is said that the fallen Nokia revived Finland. Nowadays, Finland has 25% of its startups coming from the technology developed at Nokia, despite its population being only 4% of the EU.

People who studied and worked at Nokia researched other technologies that were not adopted there and then ventured out. This means that if we invest heavily in advanced industrial technology, there can be difficulties if we over-invest beyond the country's capacity. Still, technology does not disappear; it can eventually lead to success. Nokia serves as a case in point. So where does all that money come from? We are betting stronger than the United States, but we are a smaller country with fewer resources. How do we manage that? I believe we must do it, even if it's challenging. This is not a business where large corporations make money. There is a concept called gross value added. This pertains to how much the entire nation contributes to added value, with the first being the national added value obtained from semiconductor production.

Exports are approximately around 100 billion dollars. The second aspect is related to semiconductor production, which includes materials and components, generating about 90 million dollars. Lastly, there are the ripple effects; for example, in our country, companies like Samsung and SK Hynix lead to the development of surrounding complexes and a significant increase in apartment constructions, as well as activated economic activities. All of this adds up to about 100 billion plus additional factors, resulting in roughly 400 trillion won in our currency. Therefore, the economic value is incredibly large, with an economic added value of 400 trillion won. This is why everyone has started to focus on semiconductors. Ultimately, we need to consider whether this should be viewed as a business where large corporations make money or within the scope of national industrial development, taking into account the ecosystem and the subsequent ripple effects.

I believe that we should focus on what we need to aim for. In fact, I think the latter perspective is correct. The United States is currently the world's hegemonic power, and it monopolizes almost all advanced technologies. This is not a coincidence. The U.S. is a country that is genuinely committed to technology. It has begun to pour enormous national budgets into science and technology. Through institutions like the National Science Foundation, a significant amount of national funding has been sent to universities, resulting in the emergence of many young prodigies. Silicon Valley, which has become the center of global technology, is built around these prodigies. Therefore, today's U.S. hegemony was not achieved by chance; it is because the U.S. government and its people truly understand how crucial industrial technology, especially advanced industrial technology, is.

So now, in order for our country to break free from the peak-out of economic growth rates and truly rise as a developed nation, what we need to do is to strategically support advanced industrial technology at the national level. Today, I would like to emphasize that you shouldn't worry about calorie intake; instead, try the keto diet. Yes, download the SBS Premium app now.

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The Semiconductor Crisis and South Korea's Struggle

Apple has abandoned TSMC, and Qualcomm is at risk of leaving, leading to a semiconductor crisis in the country.

The United States has monopolized advanced technology, while South Korea's economy is entering a downward trend.

Despite holding 70% of the global market share in memory production, South Korea's dominance is being challenged as Micron catches up in competitiveness.

The Semiconductor Crisis and the Need for Focus

Samsung and Hynix have a 95% yield, while Micron's is at 80%, causing Micron's costs to be higher, but they are quickly catching up.

TSMC and Samsung are the only two companies producing chips at a node smaller than 14 nanometers, with TSMC holding 70% to 80% of the market share.

The speaker argues for a concentrated focus on semiconductors, drawing a parallel to the Netherlands' success in herring fishing, to narrow the gap with developed countries.

The Impact of Dutch Shipbuilding on Trade and Technology

The Dutch established a fishing ground and fast vessels, leading to a rapid shipbuilding industry and efficient trade ships.

The fluyt, a Dutch trade ship, required fewer crew members, reducing labor costs and giving them a competitive advantage.

This efficiency allowed the Dutch to monopolize the spice trade and highlighted the importance of focusing on areas of excellence for technology spillover and industry emergence.

Semiconductors now account for 4% to 6% of costs and are considered essential goods, impacting self-sufficiency and production.

The COVID-19 pandemic highlighted the dependency on semiconductor production, leading to a fear of power dynamics between countries.

To maintain leadership in semiconductor production, collaboration and talent nurturing are crucial, but most new startups are foundries, making it challenging to initiate production in key sectors.

The Role of Government in Fostering the Semiconductor Industry

Countries are focusing on direct incentives to attract investments for semiconductor production, while the K-Chips Act takes a corporate tax-centered approach.

The effectiveness of corporate tax is weak since it is paid after generating sales and profits, which is not aligned with the urgent need for advanced semiconductor production.

Investing in advanced industrial technology can lead to long-term success, as demonstrated by Nokia's impact on Finland's startup ecosystem after its failure.

Exports related to semiconductors are around 100 billion dollars, with production generating an additional 90 million dollars.

The presence of companies like Samsung and SK Hynix has led to significant economic ripple effects, including increased apartment construction and activated economic activities, totaling roughly 400 trillion won.

government's commitment to technology and strategic funding has played a crucial role in its global dominance, highlighting the importance of supporting advanced industrial technology for national development.