Semiconductor at a crossroads
The author is a professor of electronic engineering at Hanyang University.
Semiconductors are the key industry of Korea. It contributes to 3.6 percent of the GDP, employs 165,000 people, makes up 21 percent of exports and 25 percent of the market capitalization in Korea’s stock market. With DRAM and NAND flash memory accounting for 73 percent and 49 percent of the global market shares respectively, the Korean semiconductor industry leads the globe. As smartphone specifications become more advanced and demand for big data grows, the semiconductor industry has enjoyed a boom over the last two years.
However, global investment banks like Morgan Stanley and Goldman Sachs have presented negative views on the Korean semiconductor industry. They expect that the super cycle has already peaked because of surplus memory semiconductor inventory at smartphone makers and surplus supply of Korean semiconductor makers. The industry is likely to decline next year.
Meanwhile, Samsung Electronics and SK Hynix argue that memory prices may fall next year but the boom will continue thanks to consistent increased demand for big data and new memory semiconductor for AI. If the 5G communication, which is 10 times faster, becomes commercialized by 2020, memory capacity needs to grow by 100 times. The semiconductor makers hope to see enhancement of smartphone specifications worldwide.
Optimism and skepticism coexist regarding the future of Korea’s semiconductor industry. There are elements threatening the future of Korea’s semiconductor industry. The first is that the semiconductor equipment, materials and parts industry that supports the super boom of semiconductor makers is losing global completeness. Localization of semiconductor equipment and material remains a meager 19 and 48 percent for the past ten years.
Second, advanced semiconductor R&D talent pool is rapidly decreasing. The R&D project assistant budget of the Ministry of Trade, Industry and Energy was cut to 30 billion won ($26.6 million) in 2017 from 100 billion won in 2009, and recently, nearly no new R&D budget has been allocated. As a result, the number of semiconductor masters and Ph.D. graduates from Seoul National University declined to 30 in 2017 from 100 in 2009.
Third, the Chinese memory semiconductor industry is growing fast. China’s National IC Industry Development Outline states a mission to invest an additional $150 billion by 2025 to localize 70 percent of semiconductor equipment, material and parts. In China, 32 semiconductor production fab plants are already in operation, and Fujian Jinhua, Innotron and YMTC will start mass production of DRAM and NAND flash memory from early next year. Moreover, Chinese companies are pursuing M&As and relocation to China in return for purchasing products from Korean semiconductor equipment, material and parts. Their approach is stirring up Korea’s semiconductor equipment, material and parts industry.
Korean companies, universities and government need to swiftly resolve unfavorable environments that threaten the future of the semiconductor industry. First of all, Korean semiconductor makers should widen the technology gap with Chinese companies. At present, the technological gap between Korean and Chinese semiconductor technologies is very close — China is only two or three years behind.
Second, smaller Korean semiconductor equipment, material and parts makers need to establish testbed early on with minimum investment on the projects that can secure global competitiveness. Domestic semiconductor companies and related equipment, material and parts makers should participate with full support from the Ministry of Trade, Industry and Energy.
Third, education of a talented workforce in semiconductor R&D should be promoted again. For the rise of semiconductor industry, China is operating R&D training programs at 100 universities to produce 100,000 professionals. But in Korea, educating and training of a related workforce has not been active due to rapid decrease of government budget on semiconductor R&D. It is urgent that budget is allocated for semiconductor technology R&D related to AI, big data, IoT, virtual and augmented reality, self-driving, robot and drones, which are the key businesses in the fourth industrial revolution.
Last, outflow of core semiconductor technology and skilled workers should be prevented. According to the Act on Protection of Industrial Technology, reporting and approval process of key semiconductor technology transfer should be strictly followed to prevent leaks.
When 5G mobile communication begins to be commercialized in 2020, key businesses of the fourth industrial revolution will grow, and semiconductor demands will explosively increase. If Korea removes the elements that threaten Korea’s semiconductor industry, it will be able to secure global competitiveness and lead the Korean economy.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Oct. 4, Page 29