Complacency is the biggest enemy

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

Speed, investment and geopolitical conditions can sum up the magic recipe for Korea’s semiconductor success. Exemplifying speed, Samsung Electronics’ first fabrication facility — the factory in Giheung, Gyeonggi — broke ground in September 1983 and was completed in just six months. Heaters were used to quickly dry concrete, among other inventive means to beat the usual 18-month minimum construction period for a chip assembly line.

The chipmaker continued to set new norms in the generational shift. It moved onto the 6-inch wafer when others were using the 5-inch wafer to carve out microchips, and developed the 12-inch wafer when the 8-inch wafer was just commercialized. Large-scale investments were crucial to stay ahead. Samsung kept up with a multi-billion-dollar investment on facility expansion even when dynamic random access memory (DRAM) chip prices crashed.

Still, Samsung as a latecomer could not beat Japan in memory chipmaking if not for the U.S.-Japan Semiconductor Agreement that restricted Japan’s exports — mainly DRAM — to the world’s largest market. The U.S. forcibly humbled the chip strength of its security and value ally after Japanese chipmakers, who dominated 80 percent of global memory revenue, squeezed Intel out of the DRAM market. Under the bilateral agreement, Japan’s chipmakers had to disclose their production cost and stop dumping chips below market price.

A ribbon-cutting ceremony to celebrate the completion of the world’s largest foundry TSMC in Kumamoto, Japan, on Feb. 24. [TSMC]

The end of Japanese monopolistic influence provided an opportunity for Korean entrants. The U.S.-Japan chip agreement was signed in July 1986. U.S. memory maker Micron Technology filed an antidumping suit against NEC and other Japanese competitors in June 1985. Samsung’s first DRAM factory in Giheung opened in March 1984, and the second factory was built in March 1985. Everything played out in favor of Korea’s fledgling chip industry as if pre-scripted. Japan eventually fell out of the rank in chip manufacturing. Korean and Taiwanese companies filled the void.

The recipes have lost their magical spell for Korea. Taiwan Semiconductor Manufacturing Company (TSMC), which dominates the global foundry market, completed its next-generation chip factory in Kumamoto, Japan. The construction was finished more than two months ahead of schedule by building the factory 24/7 for 24 months. Korea surrendered its strength in speed to Japan and Taiwan. It cannot compete with them in investments, either. Governments of the United States, Europe and Japan are investing in the chip industry on their home turfs with generous subsidies and incentives. Tokyo shoulders about one-third, or more than $8 billion, for TSMC’s two plants in Kumamoto. Korea provides tax incentives for chip investment. But the tax incentive cannot match cash subsidies. Japan is genuinely devoted to seeing its chip industry redux.

The geopolitical winds are also blowing unfavorably for Korean chipmakers. Since the United States pushed Japan out of the chip game three decades ago, stakeholders have been content with comfortable role-sharing — with American companies responsible for chip design, Korean companies for memory manufacturing and Taiwanese companies for production of consigned chips. The collaborative value chain is breaking up. The United States is making strides in producing cutting-edge chips. “Team America” was formed with the government backing U.S. chipmakers with subsidies and regulatory protections while they produce homemade chips. Micron recently announced a plan to mass-produce HBM3E — the fastest and highest capacity bandwidth memory to power AI performance. Micron beat Korea’s memory powerhouses like Samsung and SK hynix in turning out AI-focused memory chips, which will power Nvidia’s graphic processing units that are most preferred for AI tasks. Microsoft became the first customer to the high-end chips rolling out of Intel’s fledgling foundry. Intel zoomed up in the foundry rank as a result.

The United States and Japan are aggressively reviving their chip alliance. The two governments announced a joint statement on cooperation in chips and other advanced technologies last May. Rapidus — a chip consortium backed by the Japanese government and Japan’s top companies, including Toyota and Sony — plans to start the mass-production of 2-nanometer chips in 2027 to chase Korea and Taiwan’s tails. Rapidus sent 100 engineers to IBM, which reminds us of the postwar collaboration in which America shared patented chipmaking technologies with Japan. Despite the slogan of Chip 4 Alliance among the United States, Japan, Taiwan and Korea, Korea looks like an outcast.

Korea’s economic prosperity is anchored in chip success. Yet we don’t see any sense of urgency to stay ahead these days. Politics, the government and companies are still holding onto the status quo. At this rate, Korea may soon find itself falling off the front group.