The South Korean semiconductor industry is a major cog in the world of semiconductor manufacturing with companies like Samsung Electronics and SK Hynix leading the global market share for the production of memory products. However, companies in South Korea are also facing many challenges at the moment. This is partly stemming from internal issues like the shortage of qualified designers for advanced technology semiconductor products, as well as external factors like the ongoing chip trade war between the United States, and China.
Let’s find out how the manufacturing industry for semiconductors got started in South Korea, and how the country has risen to the top of the memory segment of the market. We’ll also look at the major companies involved in the production, as well as how they plan on overcoming the challenges facing them both internally and from other countries involved in the global semiconductor market. Furthermore, we’ll go through what the government of South Korea is doing to maintain the country’s position as a semiconductor powerhouse.
The South Korean Semiconductor Industry Today
The start of semiconductor production in South Korea could be traced back to the 1960s with foreign direct investment flowing in from the US after the Korean War as economic aid. Since the production of semiconductors was labor intensive, and South Korea had access to a relatively cheaper workforce, the industry quickly thrived with domestic companies beginning to make their investments by the 1980s.
Today, South Korea has over 19% global market share for semiconductors, with semiconductor exports amounting to US$ 128 billion in 2021 alone. This dominance on the world stage can mostly be attributed to companies like Samsung Electronics and SK Hynix which have climbed to the top of the memory segment of the market, consisting mostly of NAND flash memory chips crucial to a variety of modern applications.
South Korean businesses like Samsung Electronics are on par and have even surpassed some US companies like Intel with their superior etching capacity at the 05nm level. However, the industry is still reliant on and requires full access to electronic design automation (EDA) tools for advanced chip design which are mostly made in the United States.
On the other hand, the biggest trade partner to South Korea is China, where 48% of its memory exports go. Many of the companies in South Korea have made significant investments amounting to billions of dollars to set up manufacturing as well as research and development facilities in China. The heating up of tensions between the US and China means that South Korea will have to navigate carefully to maintain its ties to both countries while maintaining a thriving industry for semiconductors.
The Major South Korean Companies Involved In The Semiconductor Industry
The semiconductor industry in South Korea can be broken down into four main categories of companies.
Integrated Device Manufacturers (IDMs)
The largest is the Integrated Device Manufacturers (IDMs) which are involved in all stages of production from design to manufacturing, testing, packaging, and sale of semiconductors. Samsung Electronics and SK Hynix are the major players in the IDM arena. They are the equivalent of a company like Intel in the US.
Samsung Electronics is the global leader in producing NAND flash devices. They generated US$ 4.3 billion worth of revenue from these products just in the third quarter of 2022. Samsung is what is known in South Korea as a ‘Chaebol’, a large industrial conglomerate controlled by a family. Apart from the memory products, Samsung also has a significant market share of 17% in the foundry business and has even started to produce 03 nm chips before the market leader TSMC.
Close behind Samsung is SK Hynix, the second-largest manufacturer of semiconductors in South Korea. The company even acquired Intel’s solid-state drive business as well as the US company’s NAND flash production facilities located in China for US$ 09 billion.
Next are the fabless companies that handle the design and development of products but have none of their fabrication plants. Silicon Works is a South Korean fabless company and its equivalents are brands like Nvidia and Qualcomm. They will outsource the manufacturing of their products to foundry companies.
These entities focus solely on the production of integrated circuits and semiconductor components on a consignment basis for their customers. DB HiTek is a South Korean company that is in the foundry business, and their equivalent would be TSMC from Taiwan, which is the largest foundry operator in the world.
Outsourced Semiconductor Assembly and Test (OSAT) companies
Finally, there are Outsourced Semiconductor Assembly and Test (OSAT) companies like HANA Micron and NEPES that will perform assembling, testing, and packaging services in the industry. This fabless model has been adopted not just by the companies in South Korea but by the global industry as a whole. To learn more about how the fabless model and the industry as a whole got started, read The History of Semiconductor Industry.
South Korea Is Leading The Memory Market
Semiconductor products can be broken down into categories like system semiconductors which are microchips used in data processing, optical components like LEDs, discrete semiconductor components like transistors, and memory chips which are used to store data. Secondary memory storage used to be done on mechanical hard disk drives (HDDs) but the latest computers and consumer electronics devices have now moved to a non-mechanical form of storage known as solid-state drives (SSDs).
SSDs are far superior to HDDs, being faster to read and write data while consuming no power to retain data. SSDs utilize NAND flash memory technology, which South Korean manufacturers like Samsung and SK Hynix have been quick to capitalize on. The two manufacturers also lead the way when it comes to supplying volatile memory storage which uses a technology called DRAM. Together, they currently hold nearly two-thirds of the global market share in memory devices.
To learn about the most in-demand semiconductor devices in the world apart from memory chips, read The Top 5 Modern Semiconductor Devices For Integrated Circuits.
Challenges Facing The Semiconductor Industry In South Korea
Now let’s dive into some of the challenges the industry leaders and the government of South Korea will face in the coming years to maintain their market position for semiconductors.
Labor Shortage In South Korea
South Korea is currently facing a labor shortage when it comes to qualified designers of advanced semiconductor devices. While Qualcomm alone has over 20,000 employees in the US, the hundreds of fabless companies in South Korea are currently managing with only 10,000 chip designers. Further complicating the issue is the massive investments the US government has made in their domestic semiconductor industry recently.
Over US$ 52 billion is expected to flow in for manufacturing, supply chain improvements, and research and development efforts as a result of President Biden signing the Chips and Science Act. Samsung has plans to construct a US$ 17 billion plant in Texas, and there is the worry that many of the country’s best designers and engineers will move to the US
The government of South Korea has plans to nurture homegrown talent for the industry by training over 150,000 workers over ten years. It is expected to further improve the semiconductor-based educational courses currently provided by their best universities to reach this goal.
Developing Non-Memory Semiconductors
The global semiconductor market is shifting towards non-memory devices in the future with microchips used for artificial intelligence applications, the Internet of Things (IoT), and Industry 4.0 Smart Manufacturing expected to be in high demand. This means that South Korean manufacturers cannot simply rely on their current dominance in supplying the world with NAND and DRAM products.
In response to the need to improve their domestic non-memory chip production, the South Korean government has passed its version of the US Chips Act that provides tax breaks of up to 8% for manufacturers investing in the industry. These tax incentives were then increased up to 25% with the government also pledging to reduce administrative barriers and provide better infrastructure for production facilities.
And if their commitment wasn’t already clear, South Korea is also expected to open a special training center for engineers that will focus on developing the workforce needed to attain a bigger market share for non-memory chips.
How The China-US Chip Trade War Affects South Korea
In response to China’s attempts to become a global leader in artificial intelligence technologies by 2030, the Biden administration recently imposed sanctions to restrict semiconductor-based technology exports to China. This includes the sale of advanced microprocessors used in AI applications, as well as the sale of semiconductor design and manufacturing equipment, dealing a serious blow to China’s ambitions.
This China-US chip trade war puts South Korea in a delicate situation. On one hand is their security ally the US, which also helped the country kick off its semiconductor industry in the 1960s. The US also provides most of the high-tech design technology needed for next-generation semiconductor devices.
On the other hand are China, South Korea’s largest trade partner in the semiconductor market, and home to many of their latest manufacturing facilities. The South Korean government is yet to explicitly state its position on the sanctions, and their handling of the political situation between both of these superpowers will play a key role in how their semiconductor industry will thrive in the future.
South Korea Entering The Chip 4 Alliance
The Chip 4 Alliance was first proposed by US President Biden to enhance semiconductor technology collaborations between the four nations of the United States, Japan, Taiwan, and South Korea. Apart from China’s response to this alliance, there are also unresolved issues between South Korea and Japan. It would be interesting to see whether the country will agree to join this alliance, and benefit from the potential improvements to the semiconductor supply chain.
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Yes. South Korea has a thriving semiconductor manufacturing industry which is responsible for nearly two-thirds of the global memory market. Their exports were worth US$ 128 billion in 2021 alone.
Two of the largest integrated device manufacturers (IDMs) in the world are Samsung Electronics and SK Hynix which are both based in South Korea. They are involved in every aspect of production from design to manufacturing, testing, packaging, and selling their products.