Korea's dominance in semiconductors must grow, says Yoon
Yoon Suk-yeol was in a helicopter en route to a meeting with American military brass at Camp Humphreys last month when he proposed an unplanned detour. As the chopper reached Pyeongtaek, some 40 miles south of Seoul, the president-elect proposed a fly-by of Samsung Electronics’ main semiconductor facility.
It’s an enormous complex, best seen from the clouds. At 2.9 million square meters, it is the size of 400 soccer stadiums combined. The prosecutor-turned-politician marveled at what he described as “the pride of Korea” and “the heart of the global semiconductor industry.”
“The new government will foster high-tech industries including semiconductors and make them top players on the global stage,” Yoon said.
That scene was described later by Yoon’s spokesperson Bae Hyun-jin. But in the eight weeks since Yoon narrowly won the presidency on March 10, he’s made big commitments to the industry, including a 50 trillion-won ($39.3 billion) investment fund and the creation of semiconductor production clusters in at least five cities.
Korea is already a titan in chips. Samsung and SK hynix control 72 percent of the smartphone memory chip market. The two manufacturers rose to dominance in the late 1990s by foreseeing which chips would be needed and making them for the lowest possible price, vanquishing once-dominant players like Toshiba, Hitachi and Intel.
But Yoon thinks Korea can get even stronger, particularly in system-on-chips (SoC) — including the main chips for cars, mobile devices and some PCs — and the foundry business, which means making SoC chips based on designs from customers. Those segments of the chip market are dominated by Intel, Qualcomm, AMD and Nvidia for SoC chips and Taiwan’s TSMC for the foundry business.
“Semiconductors have been the backbone of the Korean economy, feeding people,” Yoon said during the presidential campaign. “But now competition is too fierce around the world and China is chasing after us with a force of engineers dozens of times larger than Korea.
“Our future will turn dark if we turn away,” he said.
In fact, the semiconductor industry has long complained about lackadaisical support from the central government, especially compared to what goes on in China and Taiwan.
“Financial subsidies are granted to chipmakers when they participate in government-led projects,” said an executive at a local automotive chip manufacturer.
“But the number of those projects are small, not to mention the size of the subsidies compared to that of China,” he said.
“Using big government funding, Chinese chip suppliers are able to cut production costs and, consequently, the price of their end products, which gives them a competitive edge over Korean companies.”
Yoon has vowed to create a massive state-backed investment fund to be used by the government and related agencies to fund the industry, with at least 50 trillion won from the government and an unspecified amount from the private sector.
The fund will be used to nurture talent in high-end chip-making: advanced SoC chips such as application processors, central processing units and graphics processing units.
Yoon’s transition team announced earlier this month that the major beneficiaries will be companies that design and manufacture SoC chips not memory chips.
“Korea is the top producer of memory chips, but the country is falling behind other countries including China in terms of SoC chips,” said Kim Gi-heung, presidential transition committee deputy spokesperson.
“While maintaining supremacy in the memory chip sector, we need to establish an ecosystem for SoC chips through close cooperation among the industry, research institutes and universities,” he said.
Semiconductors accounted for 20 percent of all Korean exports last year.
But memory chips were 62 percent, according to the Korea Institute for International Economic Policy, and SoC chips only 28 percent. Memory chips are cheaper and subject to wild price swings.
To nurture the production of higher performing chips, Yoon laid out a plan to allow big semiconductor factories in new locations. Currently, Samsung and SK hynix’s big facilities are in the cities of Pyeongtaek, Icheon and Yongin.
On the campaign trail, Yoon said Gwangju could become a hub for semiconductors used in automobiles. During a visit to Anseong, Gyeonggi, in February, he pledged to turn the city into a central place for chip manufacturing.
To accelerate the building of these clusters, the Yoon administration vowed to simplify government approvals for semiconductor complexes by having them done by the central government, not regional governments.
Approvals have been a bottleneck in the opening of chip factories in the past.
“You can see ground hasn’t been broken on SK hynix’s Yongin complex three years after the company’s announced it would build it,” said another executive at a local semiconductor equipment company. “That is because of a long list of tests, standards and certificates that a business must undergo without a central body to oversee the construction process,” he said.
In the United States, that process could be carried out in a matter of months, he said.
The new administration has also promised generous incentives to attract talent.
As a presidential candidate, Yoon promised to nurture 100,000 semiconductor engineers over an unspecified period of time.
His transition team announced earlier this month that the Yoon government will establish a graduate school dedicated to chip education and support programs for students who didn’t study semiconductor engineering in college to switch in graduate school.
It is estimated that by 2031, the industry will be short 30,000 employees, according to a statement released by the committee.
Among the various measures promised, a key is tax incentives. Although Yoon vowed to expand tax support for companies investing in semiconductor facilities, details have not been announced.
Analysts believe that tax benefits offered by the outgoing Moon Jae-in administration primarily helped small-and-medium sized companies, and not big players such as Samsung and SK hynix.
In a revision to the tax law that came into effect this year, the Moon administration increased the rate of investment tax credit to 20 percent for SMEs and to 10 percent for big corporations.
Business lobbying groups proposed at least 20 percent for big companies and 30 percent for smaller manufacturers.
It remains to be seen whether Yoon will make good on all his promises, but if his cabinet picks are any indication, he appears to be on the right track.
Lee Jong-ho, a computer engineering professor at Seoul National University and director of the university’s Inter-University Semiconductor Research Center, has been nominated science and ICT minister. Lee made a career in semiconductor development, with numerous patents to his name, especially in SoC chip development.
“So far, people in semiconductor circles have great expectations for Yoon because his promises addressed some major pain points in the industry,” said the executive at the equipment company. “But the bottom line is how the policies and laws are actually implemented,” he said. “We can’t forget that many good policies go sour when actually put into effect because of bureaucratic red tape.”
BY PARK EUN-JEE [firstname.lastname@example.org]