Korea urged to offer direct grants for chip facility investment

Aerial shot of Samsung Electronics' Pyeongtaek fabrication plant [SAMSUNG ELECTRONICS]

Calls for direct grants for chip facility investment continue to grow in Korea in order to secure a competitive edge in the global AI chip race.

The role of extended facilities has become increasingly important in deciding manufacturing capacity for chipmakers, and handing out direct grants remains the most effective method to induce more investment, according to a policy report co-published by the Korea Chamber of Commerce and Industry and Deloitte Anjin on Thursday.

Extended facilities accounted for 53 percent of the factors behind ramped-up production of dynamic random-access memory (DRAM) chips for Samsung Electronics, SK hynix and Micron between 2020 and 2022, compared to eight percent from between 2018 and 2022.

Advancement in technology, on the other hand, accounted for 47 percent among the factors, down from 92 percent during the cited period.

A similar trend was spotted in NANDs as extended facilities accounted for 42 percent among factors that contributed to boosted chip production, up from three percent, while technology advancement accounted for 58 percent, down from 97 percent, during the cited period, the report said.

"Microprocessing is becoming more challenging and hitting its physical limit," said the report. "Therefore, facility extension is becoming more of an important factor to secure chip production capacity rather than technology advancement. Large-sized capital injection to extend fabrication lines will become increasingly important."

The report added that if 30 percent of the chip facility investment is given as direct grants, the cost competitiveness of chips produced in those facilities increases by 10 percent, citing a financial statement analysis of chipmakers.

It said that while it costs $11,459 to produce a single silicon wafer with the three-nanometer contract manufacturing process normally, a 30 percent grant will reduce it by 10.2 percent to $10,295.

The resulting increase in operating profit will return to the government through corporate taxes, which is determined on based on the profit.

"The core of the chip industry lies in manufacturing capacity and cost competitiveness," the report said.

"It is important to achieve an economy of scale at an early stage through direct grants for facility investment."

The U.S. has already set aside $39 billion in direct grants to boost chip facility investment in the country, while the European Union and Japan also set aside $46.4 billion and $12.3 billion, respectively, for chipmakers.

Korea recently announced 26 trillion won ($18.9 billion) for a support program for the chip industry, but it did not include direct grants.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]