The “sense of crisis” has gripped the South Korean chip industry, warns the minister

South Korea’s science minister said a “sense of crisis” is gripping the country’s semiconductor industry as the East Asian nation prepares to face increasing challenges from the US and China in a increasingly intense global war.

There is growing fear among Korean officials and industry executives that the country will abandon manufacturing facilities as domestic chip makers, lured by subsidies and tax incentives, scramble to build semiconductor plants in the United States. China is also catching up quickly in the memory chip sector thanks to generous state funding.

Lee Jong-ho, minister of information communications science and technology and a well-known semiconductor expert, told the Financial Times that the legislation passed last month had “laid the legal basis for supporting the semiconductor industry against stiff competition from countries such as the United States, China, Japan [and in] Europe and Taiwan “.

“It reflects a sense of crisis on our competitiveness on the global stage and the act is designed to strengthen our competitiveness in the supply chain and in security,” said Lee.

“Korean companies have received relatively less tax benefits from the government and have suffered from a lack of talent than China, the US and Taiwan, so we have addressed the issues with the legislation.”

Washington is using $ 52 billion in grants outlined in the Chips and Science Act to entice global chip makers to expand their manufacturing in the United States. But the legislation also includes “guardrails” that prohibit recipients of US federal funding from expanding or upgrading their advanced chip capacity in China for 10 years.

Science Minister Lee Jong-ho said the legislation passed last month “has laid the legal foundation to support the semiconductor industry” © BJ Warnick / Newscom / Alamy

Last week, South Korea’s Commerce Minister Ahn Duk-geun told the Financial Times that “our semiconductor industry has a lot of concerns about what the US government is doing these days.” He acknowledged the disagreements between Seoul and Washington over restrictions on the transfer of state-of-the-art manufacturing capacity to plants in China.

South Korea remains the world’s largest memory chip maker, with Samsung and SK Hynix jointly controlling approximately 70% of the global Dram market and more than half of the Nand flash market.

Dram chips allow short-term storage of graphics, mobile and server chips, while Nand chips allow files and data to be stored without power.

But the technology advantage of Korean chip makers over US rival Micron in the Dram business appears to be shrinking, while Chinese chip makers like YMTC are expanding their market share in the Nand flash market. Apple said this month that it was “considering sourcing from YMTC for Nand chips for use in some iPhones sold in China.”

“The sense of crisis and anxiety about the competitiveness of our industry is greater than ever,” said Kim Yang-paeng, senior researcher at the Korea Institute for Industrial Economics and Trade. “There is concern that the country’s role in the global supply chain may be threatened as Korean chip makers flock to the United States.”

James Lim, analyst at US hedge fund Dalton Investments, said: “The volume that YMTC provides to Apple will be small, but it shows that China is catching up quickly in terms of technology and could be a threat to South Korean chip makers. “.

Industry officials want the South Korean government to provide more support to domestic chip makers as the US, China and Europe increase investment in the industry.

President Yoon Suk-yeol, who said that semiconductors “determine the fate of the South Korean economy”, has promised greater support for the industry. But two major bills to strengthen it, known as the K-Chips Acts, are still pending in parliament.

The Yoon administration, which took office in May, has expanded tax breaks and reduced red tape. It also intends to provide funding for essential infrastructure for chip manufacturing facilities such as electricity and water supply.

It wants to develop large “chip clusters” that will bring together manufacturing, research and development and attract foreign chip makers to Korea.

“The domestic chip market is not large, so companies need to set their sights on the global market to generate profits,” said Lee.

By addressing the “lack of talent” Lee refers to, the government plans to train 150,000 people over 10 years to increase the semiconductor workforce.

But the chip clusters were hampered by environmental problems and problems with securing permits. They are also unlikely to satisfy US officials, who fear that too many global chips are already produced in the geopolitical hotspots of East Asia.

Analysts also noted that much of the research and development conducted by Korean companies on next-generation semiconductor technologies was taking place in the United States.

“The South Korean semiconductor industry is concerned that it may be overtaken by promising new competitors, just as it has outperformed others in the past,” said Burm Jin-wook, a professor of electrical engineering at Sogang University in Seoul.

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