Skip to content
  • KOSPI 3247.27 +10.41 +0.32%
  • KOSDAQ 1041.14 +5.46 +0.53%
  • KOSPI200 430.23 +1.08 +0.25%
  • USD/KRW 1150.2 -3.00 -0.26%
  • JPY100/KRW 1,047.68 2.78 0.27%
  • EUR/KRW 1,359.36 -1.70 -0.13%
  • CNH/KRW 177.6 -0.16 -0.09%
View Market Snapshot

Semiconductor rivalry

Korean chipmakers in rivals’ shadow, fall behind TSMC

By May 11, 2021 (Gmt+09:00)

Korean chipmakers in rivals’ shadow, fall behind TSMC

South Korea is home to the world’s two leading memory chipmakers, Samsung Electronics Co. and SK Hynix Inc., which together with their smaller domestic peers account for about a fifth of the country’s exports.

For years, Korea has been touted as the global powerhouse of memory chips. Still, a deeper look reveals that the country’s chipmakers are walking in the shadow of their competitors.

According to analysis by the Federation of Korean Industries (FKI) released on May 11, the number of Korean chipmakers with annual sales of more than 1 trillion won ($893 million) stands at just one-third of Taiwan’s and about half that of China.

The FKI study of 143 semiconductor companies, including equipment makers, in four countries – Korea, Taiwan, China and the US – showed 32 American companies posted over 1 trillion won in revenue last year, followed by Taiwan (21 companies), China (17) and Korea (7).

The study, commissioned by The Korea Economic Daily, also showed Korean firms’ 2020 gross profit rose 12.9% from the previous year, falling far behind China’s 44.9% and Taiwan’s 36.8%, but ahead of the US' 4.5%.

Analysts say the results of the study point to the weak structure of Korean chipmakers’ business portfolios, where they are lagging in the non-memory sector that accounts for the lion’s share of the overall semiconductor market.

CYCLICAL DRAM BUSINESS

In the global semiconductor industry, memory chips account for about 30% while the remaining 70% is taken up by non-memory chips such as system-on-chips, in which Korean companies are distant followers.

The memory industry, where DRAM and NAND flash are the two mainstay products, is typically cyclical, swayed by the ups and downs of the global economy, often leaving Samsung and SK Hynix uncertain about their future investment plans.

Industry data showed global DRAM contract prices fell 61.2% in 2019 from the previous year, which drove down Korean chipmakers’ gross profit by 32.1%. Last year,  contract DRAM prices rose a mere 1.4% amid weak demand in the pandemic era.

Samsung Electronics' chip clean room
Samsung Electronics' chip clean room

“The DRAM business is very volatile,” said a local chip industry official. “Even if Samsung makes big money from DRAM in a given year, it cannot easily decide to significantly increase investment in its foundry and other memory businesses in the following year. Such uncertainty is a risk factor.”

The ratio of Korean chipmakers’ research and development (R&D) spending to sales stood at 8.7% in 2020. That compared with 16.4% for the US and 9% for Taiwan, according to industry data.

UPHILL BATTLE

Analysts said Korean chipmakers will likely face an uphill battle in an increasingly competitive industry where government support, as well as technological prowess, is crucial to maintaining market leadership.

“The government should consider easing the tight industrial regulations and make special laws to aid the local semiconductor industry,” said Park Jae-geun, a materials engineering professor at Hanyang University.

Kim Tae-yoon, chief of the FKI’s industrial strategy team, said establishing a solid system-chip ecosystem in Korea would help make Korean companies less affected by the volatile memory market.

The Korean government in 2019 unveiled a plan to foster the country’s non-memory chip industry but the benefits have yet to be felt, said industry officials.

“The reality is that we have only one domestic fabless firm with over 1 trillion won in sales, that is Silicon Works Co.,” said an official at a Korean chipmaker.

In the foundry market, where chipmakers make chips for fabless companies and chip designing firms, Samsung is the world’s No. 2 player with an 18% market share. That’s well below market leader Taiwan Semiconductor Manufacturing Co.'s (TSMC) 56%.

Samsung is known to be spending 10 trillion won a year to develop its foundry technology, compared to TSMC’s 30 trillion won a year investment.

“The government should offer local chipmakers more incentives for their investments. The deduction rate for facilities spending needs to be raised to match 40% in the US,” said Ahn Ki-hyun, senior executive director of the Korea Semiconductor Industry Association.

US President Joe Biden at the chip summit in April (Courtesy of AP, Yonhap)
US President Joe Biden at the chip summit in April (Courtesy of AP, Yonhap)

CHIP COLD WAR

The current global race for semiconductors, largely driven by the aggressive measures taken by China and the US, has entered a more serious phase with the European Union joining the emerging chip cold war as the third bloc.

German Chancellor Angela Merkel in April said that Germany will invest a combined 3.6 billion euros ($4.3 billion) on non-memory semiconductors together with 27 European companies to secure the continent’s chip autonomy.

Meanwhile, US Commerce Secretary Gina Raimondo has scheduled a May 20 online meeting with senior US auto industry leaders and chipmakers to discuss the country’s chip supply chain and the worsening semiconductor shortage.

Korea’s Samsung and Taiwan’s TSMC are invited to the meeting, according to media reports.

Write to Jeong-Soo Hwang at hjs@hankyung.com

In-Soo Nam edited this article.

Comment 0

0/300