Is Japan's goal to hinder South Korea's development of system semiconductors?

South Korea's memory semiconductor industry accounts for more than 60% of the global market, but it lags far behind Japan in the field of system semiconductors. South Korean media analysis pointed out that Japan's export restrictions on South Korea may be intended to hinder South Korea's development of system semiconductors.

According to statistics from market research firm IHS Markit, as of last year, South Korea's system semiconductor sales were US$12.144 billion (approximately 14.33 trillion won), with a market share of only 3.8%, which is about one-third of Japan's (approximately 39.37 trillion won, market share of 10.4%). The sales volume alone is more than 25 trillion won different.

According to the South Korean media Money Today, Japan has been ahead of South Korea in the field of system semiconductors for many years, and the sales gap has been increasing year by year, reaching 21 trillion 350 billion won in 2015, 22 trillion 270 billion won in 2016, and 25 trillion 530 billion won in 2017. The sales gap in the first quarter of this year was about 6 trillion won, which is also more than the same period last year (5 trillion 700 billion won).

System semiconductors, such as CPU (central processing unit) and GPU (graphics processing unit), are generally based on memory semiconductors such as DRAM and NAND flash memory, and are semiconductors that process and calculate data. If the semiconductor market is divided into two major categories: memory and system semiconductors, the sales of system semiconductors are about twice that of memory.

This is also the reason why Samsung Electronics set a goal in April to become the number one in the system semiconductor market by 2030. If this goal can be achieved, Samsung Electronics' influence will account for more than half of the global semiconductor market.

In the field of system semiconductors, Japan has an absolute advantage in the field of image sensors. Sony's image sensor market share is as high as 50% worldwide. Although Samsung Electronics has actively developed this field in recent years, its market share last year was only 19.8%. Industry insiders said that although South Korea has a memory myth, Japan and South Korea have continued to compete in the semiconductor field for 30 years.

Since last month, the Japanese government has tightened export restrictions on semiconductor and display raw materials to South Korea. The raw materials of the restricted items are mainly produced exclusively by Japanese companies such as Shin-Etsu Chemical and JSR, posing a considerable threat to South Korea. Park Sang-hyun, a researcher at Hi Investment Securities in South Korea, analyzed that if we refer to the case of the US-Japan semiconductor conflict in 1980, Japan introduced this policy mainly to contain South Korea. Although Japan has given up its sovereignty in memory semiconductors, it will block South Korea from developing system semiconductors in the future.

IHS Markit predicts that the memory semiconductor market will reach $175.85 billion this year and will shrink slightly to $175.33 billion next year. On the contrary, the size of non-memory will grow from $332.87 billion to $343.59 billion. In the future, the non-memory market will benefit from emerging businesses such as 5G communications, AI (artificial intelligence), IoT (Internet of Things), and driverless cars, and system semiconductors will also grow faster.

Regarding Japan's tightening of export restrictions, industry insiders pointed out that while it is important for South Korea to develop localization, from the perspective of semiconductor industry strategy, Japan's intentions also need to be examined, and the government also needs to develop the core of the 4th industrial revolution - system semiconductors as soon as possible.