Korean semiconductors, are you anxious?
Latest update time：2021-09-05 13:03
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Yesterday, South Korea announced ambitious plans to spend about $450 billion over the next decade to build the world's largest chip manufacturing base, joining China and the United States in a global battle for chip dominance.
South Korean President Moon Jae-in attended the "K-Semiconductor Strategy Report Conference" at the Samsung Electronics Pyeongtaek Factory on the 13th and stated that the government will consolidate its position as the world leader in memory chips and lead the global system chip market, and will definitely achieve the goal of becoming a comprehensive semiconductor power by 2030. He further pointed out that the government will plan the world's largest semiconductor industry supply chain in Gyeonggi Province and Chungcheong Province - the "K-Semiconductor Industry Belt", aiming to establish an efficient industrial cluster integrating semiconductor production, raw materials, components, equipment, cutting-edge equipment, and design.
In Moon Jae-in's view, semiconductors are a national innovation strategic technology, so the country will increase tax subsidies for technology investment to up to six times the current level, and reduce taxes by up to 50% for R&D investment. In the next ten years, 36,000 semiconductor talents will be trained, and efforts will be made to develop core technologies with great development potential, such as next-generation power semiconductors, artificial intelligence semiconductors, and high-end sensors.
According to the Korea Semiconductor Industry Association, about 153 Korean chip companies have planned to invest more than 510 trillion won between this year and 2030, including Samsung Electronics, the world's largest memory chip manufacturer, and SK Hynix, the second largest. Samsung alone plans to invest more than $150 billion in the next decade to develop semiconductor businesses other than memory.
It can be seen from this that Korean semiconductors seem to be really anxious.
South Korea's semiconductor strength
When we talk about Korean semiconductors, the first thing that comes to mind is the storage business. Indeed, thanks to Samsung and SK Hynix's efforts in DRAM and NAND Flash, this part of their business has become the backbone of Korean semiconductors.
According to relevant reports, Samsung Electronics and SK Hynix have built a "ONE-TWO Punch" in the global memory semiconductor market. However, memory semiconductors only account for about 30% of the global semiconductor market sales. Among the remaining 70% of the market share, Korean companies are "latecomers."
According to a survey, the number of semiconductor manufacturers in South Korea with sales of more than 1 trillion won (about 5.7 billion yuan) is one-third of its competitor Taiwan and one-half of mainland China. Some analysts believe that South Korea's semiconductor industry structure is biased towards storage semiconductors and has not successfully built an ecological system of "design-materials-equipment-production".
The Korea Economic Daily previously commissioned the Federation of Korean Industries to analyze the performance of listed semiconductor companies in four countries and regions, namely South Korea, the United States, mainland China, and Taiwan Province of China, from 2018 to 2020. The companies analyzed were semiconductor (including equipment) companies surveyed by S&P Capital IQ, a global financial information company.
The statistical results show that the companies with sales of more than 1 trillion won last year are as follows: Intel (comprehensive semiconductor company), Qualcomm (Fabless), Lam Research (Lam Research, equipment), etc. There are 32 American companies in total, the largest number; there are 21 companies in Taiwan, including TSMC (Foundry), ASE (Packaging), MediaTek (Smartphone AP), etc. There are 17 companies in mainland China, including SMIC (Foundry, SMIC).
In South Korea, only seven companies, including Samsung Electronics and LG Hynix, have revenues exceeding 1 trillion won. Among pure fabless companies, which are known as the backbone of semiconductor technology, only Silicon Works has sales of 1 trillion won. In Taiwan, in addition to MediaTek, display chip giant Novatek and network chip giant Realtek have sales of more than 1 trillion won.
The weaknesses of South Korea's semiconductor industry are clearly reflected in its performance.
According to data released by the Federation of Korean Industries, the total profit (including operating profit and non-operating profit) of 143 Korean semiconductor companies (including Samsung Electronics) classified by S&P Capital IQ, a global financial information company, increased by 12.7% in fiscal 2020. The total profit growth rate of Taiwanese companies, as competitors, was 36.8%, and even the growth rate in mainland China, which was hit by the United States, reached 44.9%, far exceeding South Korea.
For Korean semiconductor companies, last year was a good opportunity for a surge in performance. The reasons are as follows: Net profit in 2019 fell by 32.1% compared to 2018, thus creating a good foundation for performance growth. Some analysts pointed out that the reason why South Korea's performance growth rate was lower than that of its competitors was due to its over-reliance on memory semiconductors.
South Korea’s storage “trap”
Although storage makes Korean semiconductors look very good on paper, some people point out that if Korean semiconductor companies indulge in being the "leader in storage semiconductors" and do not actively support the development of other semiconductor companies, they are likely to collapse.
As we all know, storage semiconductors such as DRAM and NAND flash memory are typical "market industries". The characteristics of storage semiconductors in almost all IT products are affected by the global economy. This is because in the medium and long term, storage semiconductors follow a "rise and fall cycle". In addition, most storage semiconductors are general-purpose (no obvious difference in performance) and are not easy to differentiate. Therefore, the performance of individual companies reflects part of the market price.
The fixed transaction price of DRAM in 2019 dropped 61.2% from its peak in 2018. As a result, the total profits of Korean semiconductor companies also dropped 32.1% in 2019. DRAM prices increased by 1.4% in 2020. Even though Samsung Electronics and other companies have been committed to improving yields and technological capabilities, they have not found any way to influence prices.
Even if production is increased or decreased according to market conditions, great caution is required. When the number of market participants drops to three to five, influencing prices will be considered a "violation of monopoly law." The risk factor that companies are most worried about is the instability of performance, because this will affect the company's future forecasts and make it difficult to allocate future investment resources.
Negative effects have already appeared. South Korean companies' research and development expenditures in 2020 fell 2.5 percentage points from 2019 (9.4%) to 6.9%. The growth rate of research and development investment in competitor Taiwan is as follows: 13.3% in 2019 and 18.2% in 2020, about twice that of South Korea. In terms of the proportion of research and development expenses to sales, South Korea was 8.7% last year, Taiwan was 9.0%, and the United States was 16.4%, all higher than South Korea.
In addition, it is necessary to be cautious about astronomical investments. Samsung Electronics is said to be particularly troubled. A person in the semiconductor industry pointed out, "The DRAM business has a lot of changes, and Samsung Electronics has the largest annual DRAM revenue, so it is difficult to invest a large amount of money in the foundry."
For this reason, some experts pointed out that if South Korea wants to survive in the global semiconductor competition, it needs special government support for equipment investment, research and development, etc., and government support is urgently needed. Since 2019, the South Korean government has begun to systematically support the semiconductor industry, but there has been no obvious effect.
Mr. Kim, head of the Korea Federation of Economy and Trade's industrial strategy group, also said: "The South Korean government should quickly enact a special law on semiconductors to help build South Korea's semiconductor industry ecosystem."
Are system semiconductors the answer?
According to Korean experts, the solution to this problem is to "cultivate the system semiconductor industry."
The so-called system semiconductor is a semiconductor that has the functions of processing data, communication, transformation, etc. The related industry chain is relatively broad, consisting of Fabless and Foundry. Due to the high added value, customized production can be carried out, which is less affected by market conditions and can ensure stable income.
The South Korean government recognizes the importance of system semiconductors and launched a system semiconductor cultivation strategy in 2019. The academic community and the semiconductor industry have objectively evaluated the above as "no obvious effect". Although some people believe that the barriers to entry into system semiconductors are high and require a certain amount of technological accumulation, people in the industry continue to point out that "the scale of support is too small and the system strategy is not perfect enough".
A person related to a Korean fabless company pointed out: "Silicon Works is the only fabless company with sales of more than 1 trillion won, which is a shortcoming of the Korean system semiconductor industry."
Some experts pointed out that "in terms of competitiveness of system semiconductors, South Korea lags behind Taiwan". Taiwan's system semiconductor industry is supported by TSMC, the world's leading foundry. In terms of fabless, in terms of sales volume, there are companies such as MediaTek (the world's largest smartphone AP) and Novatek (a well-known display chip manufacturer). When it comes to packaging, Taiwan has ASE, which ranks first in the world, and even the strength of controller manufacturers such as Lianqun cannot be ignored.
In terms of foundry, although Samsung Electronics of South Korea ranks second in the world, it is difficult to catch up with TSMC. TSMC invests about 30 trillion won (or even more) every year, while Samsung Electronics' annual investment is said to be around 10 trillion won. A person related to the Korea Semiconductor Industry Association pointed out: "At least the deduction rate for equipment investment should be raised to the same level as the United States (40%), and incentives should be provided for investment to encourage investment."
There are also views that Taiwan has formed an industrial chain centered on TSMC, and South Korea also needs to create an ecosystem centered on large companies (such as Samsung Electronics) like Taiwan. Professor Park of the Department of Convergence Electronics Engineering at Hanyang University in South Korea said: "In order for Samsung Electronics and SK Hynix to cultivate fabless companies and packaging companies and cooperate, it is necessary to re-examine the industrial restriction bill and increase tax incentives."
According to recent reports, the South Korean government also announced the expansion of tax incentives and provided a loan of 1 trillion won (about US$883 million) to support the chip industry through the current challenging operating environment.
According to the plan, the government will provide tax relief, financial and infrastructure support to related companies. The tax deduction rate for semiconductor R&D and equipment investment will be increased to 40-50% and 10-20% respectively. Samsung Electronics, SK Hynix and other companies are expected to invest 510 trillion won (about 3 trillion yuan) in 10 years, and this year's investment will reach 41.8 trillion won.
In addition, the government plans to set up a special fund of 1 trillion won for semiconductor equipment investment to support corporate equipment investment at low interest rates. The government predicts that if the plan is successfully implemented, South Korea's annual semiconductor exports will increase from US$99.2 billion last year to US$200 billion in 2030, and related jobs will increase to 270,000.
South Korea's Ministry of Trade, Industry and Energy said in a statement that the government will increase capital expenditure tax incentives for large companies engaged in "key strategic technologies" such as semiconductors from the current maximum of 3% to 6% between the second half of 2021 and 2024. The South Korean government will also provide about 1 trillion won in long-term loans to increase contract production capacity for 8-inch wafer chips, as well as investments in materials and packaging.
Equipment and materials are beginning to emerge
Although the previous article discussed some shortcomings and risks of Korean semiconductors, in fact, Korean semiconductors have made considerable progress in the past few years. Especially after experiencing the Japanese sanctions two years ago, their achievements in equipment and materials are still very impressive.
From the previous report of Semiconductor Industry Observer
"South Korea's Semiconductor Industry Makes a Fortune in Quiet"
, we can see that after the changes in the Japan-South Korea trade situation, supporting equipment investment for key wafer foundry companies has become one of the plans of the South Korean government's "System Chip Industry Vision and Strategy". Under the trend of localization, South Korean equipment manufacturers have also grown up-the South Korean government announced in July 2019 that it plans to provide a budget of 1 trillion won per year to support the localization of semiconductor materials and equipment. According to relevant statistics, there are currently 57 semiconductor and panel equipment companies listed in South Korea, which does not include SEMES, South Korea's largest semiconductor equipment company, which is also a company under the Samsung Group.
Taking stock of South Korea's semiconductor equipment manufacturers, they have PSK, which has the largest market share in the field of photoresist strippers, even beating out American equipment giant Lam Research. Relevant analysis shows that PSK is the only producer of hard mask strippers specifically for hard hard masks, and due to the immature development status, competing companies struggle to mass-produce products with comparable functions.
Meanwhile, shipments of semiconductor parts produced by South Korean companies have risen overall, especially to the United States and China. Last year, South Korea's exports of semiconductor components surged 34% to $245 million, making it the fourth-largest exporter in the sector.
In terms of materials, according to a report by Nikkei in February this year, South Korea's domestically manufactured products in semiconductor-related materials have begun to spread. According to data released by the Korea Trade Association, South Korea's imports of hydrogen fluoride from Japan in 2020 have decreased by 75% compared with 2019. The overall import volume of hydrogen fluoride from overseas has also decreased by 50%.
Nikkei further pointed out that the South Korean government will promote the localization of a wide range of materials and manufacturing equipment in order to get rid of its dependence on Japan throughout the supply chain. In 2021, a budget framework of 2.2 trillion won will be set up, which is 30% higher than the previous year, to subsidize the research and development expenses of enterprises. It will designate cutting-edge technology development areas and set up a tax incentive system to promote investment promotion in South Korea and abroad. According to Nikkei, Japanese semiconductor material manufacturers are now also increasing production in South Korea.
Under the influence of geopolitics, trade frictions and the epidemic in the past few years, China, the United States, Japan, the European Union and even South Korea have begun to focus on semiconductors. What results can South Korea's big plan achieve? Let us wait and see.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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