Yesterday, South Korea announced ambitious plans.It plans to spend about $450 billion over the next decade to build the world's largest chip manufacturing base to compete with China and the United States for chip dominance around the world.

South Korean President Moon Jae-in said when attending the "K-Semiconductor Strategy report Conference" at Samsung Electronics Pyeongze factory on the 13th that the government will consolidate its position as the global leader in memory chips and lead the global system chip market, and will achieve the goal of an integrated semiconductor power by 2030. He further pointed out thatThe government will plan the "K-Semiconductor Industry Belt", the largest semiconductor industry supply chain in the world, in Gyeonggi Province and Zhongqing Dao. The aim is to establish an efficient industrial cluster integrating semiconductor production, raw materials, components, equipment and cutting-edge equipment, design, etc.

In Wen Jaiyin's view, semiconductors are national innovation strategic technology, so the state has expanded the tax subsidy for technology investment to up to six times the current level, and deducted up to 50% for R & D investment. In the next ten years, we will train 36000 semiconductor talents and devote ourselves to developing the next generation of power semiconductors, artificial intelligence semiconductors, high-end sensors and other core technologies with great development potential.

According to the Korea Semiconductor Industry Association, about 153 South Korean chip companies have planned to invest a total of more than 510 trillion won between this year and 2030, including Samsung Electronics, the world's largest memory chip maker, and SK Hynix, the second largest manufacturer. Among them, Samsung alone plans to spend more than $150 billion over the next decade to develop non-storage semiconductor businesses.

Thus it can be seen that Korean Semiconductor really seems to be in a hurry.

Aspects of Korean Semiconductor strength

When we talk about Korean semiconductors, the first thing that comes to mind is the storage business. Admittedly, with the efforts of Samsung and SK Hynix in DRAM and NAND Flash, this part of their business has become the backbone of Korean semiconductors.

According to related reports, Samsung Electronics and SK Hynix have built a "ONE-TWO Punch" posture in the global storage semiconductor market. However, storage semiconductors account for only about 30% of global semiconductor market sales. South Korean enterprises are "rising stars" in the remaining 70% of the market share.

According to the survey, the number of semiconductor manufacturers in South Korea with sales of more than 1 trillion won (about 5.7 billion yuan) is 1/3 of that of competitor Taiwan and 1/2 of that of Chinese mainland. Some analysts believe that South Korea's semiconductor industry structure is biased towards storage semiconductors, and has not successfully built a "design-material-equipment-production" ecosystem.

Korea Economic News earlier commissioned the National Federation of Economic people to analyze the performance of semiconductor listed companies in South Korea, the United States, Chinese mainland and Taiwan Province of China in the three years from 2018 to 2020. The object of the analysis is the semiconductor (including equipment) companies surveyed by IQ, a global financial information company.

The statistical results show that the enterprises with sales of more than 1 trillion won last year are as follows: Intel Corp (comprehensive semiconductor enterprise), Qualcomm Inc (Fabless), Pan Lin Semiconductor (Lam Research, equipment), etc., with a total of 32 American enterprises, the largest number; Taiwan has 21 enterprises, including TSMC (Foundry), ASE (packaging), MediaTek (smartphone AP), and so on. Chinese mainland has 17 enterprises, including SMIC (Foundry, Semiconductor Manufacturing International Corporation).

When it comes to South Korea, the enterprises with revenue of more than 1 trillion won are limited to Samsung Electronics, LG Hynix and other seven enterprises. In the pure Fabless, which is known as the "backbone" of semiconductor technology, there is only "Silicon Works" with sales of 1 trillion won. In Taiwan, in addition to MediaTek, there are display chip giant Novatek, network chip giant Realtek sales of more than 1 trillion won of Fabless.

The weakness of South Korea's semiconductor industry is clearly reflected in its performance.

From the data released by the National Federation of Economic people, we can see that the total profit (including operating profit and non-operating profit) of the 143 South Korean semiconductor companies (including Samsung Electronics) classified by the global financial information company (Sipp Capital IQ) grew by 12.7% in fiscal 2020. As competitors, the total profit growth rate of Taiwanese companies was 36.8%, even in the Chinese mainland region hit by the United States, the growth rate reached 44.9%, far surpassing South Korea.

For South Korean semiconductor companies, last year was a good opportunity for soaring performance. The reasons are as follows: net profit in 2019 was 32.1% lower than in 2018, thus creating a good basis for performance growth. Some analysts pointed out that the reason why South Korea's performance growth rate is lower than its competitors is due to its over-reliance on storage semiconductors.

Storage "Trap" in Korea

Although storage makes Korean semiconductors look very good from a card point of view, it is pointed out that if they indulge in the "leader of storage semiconductors" and do not actively support the development of other semiconductor enterprises, South Korean semiconductor enterprises are likely to collapse.

As we all know, memory semiconductors such as DRAM and NAND flash memory are typical "market industries". The characteristics of memory semiconductors on almost all IT products are affected by the global economy, because in the medium to long term, memory semiconductors follow a "rising and falling cycle". In addition, most storage semiconductors are general-purpose (there is no significant difference in performance), so it is not easy to form differentiation. Therefore, the performance of individual enterprises reflects part of the market price.

The fixed trading price of DRAM plunged 61.2% in 2019 from its peak in 2018, so the total profits of South Korean semiconductor companies also plunged by 32.1% in 2019. In 2020, the price of DRAM increased by 1.4%. Samsung Electronics and other companies have not found any way to influence the price, even if they are committed to improving the yield and technological capability.

Even if we increase or reduce production according to market conditions, we need to be very cautious. When the number of market participants falls to three to five, exerting influence on prices will be considered a "violation of monopoly law". The most worrying risk factor for enterprises is the instability of performance. Because it will affect the prediction of the future of the enterprise, it is difficult to deploy future investment resources.

Negative effects have emerged. South Korean companies' spending on research and development fell 2.5 percentage points to 6.9% in 2020 from 9.4% in 2019. Rival Taiwan's R & D investment growth rate is as follows: 13.3% in 2019 and 18.2% in 2020, about twice that of South Korea. As a proportion of sales, research and development expenses were 8.7 per cent in South Korea, 9.0 per cent in Taiwan and 16.4 per cent in the United States last year, all higher than South Korea.

In addition, astronomical amounts of investment need to be treated with caution. Samsung Electronics is said to be particularly troubled. Semiconductor industry sources pointed out: "DRAM business changes greatly, and Samsung Electronics DRAM annual revenue is the largest, so it is difficult to invest large-scale funds to Foundry."

For this reason, some experts have pointed out that if South Korea wants to survive in the global competition for semiconductor hegemony, it needs special support from the government for equipment investment, research and development, and government support is urgently needed. Since 2019, the South Korean government has begun to systematically support the semiconductor industry, but with no obvious results.

Mr. Kim, head of the Industrial Strategy Group of Korea's all-Economic Union, also said: "the South Korean government should quickly formulate a special law on semiconductors to help build South Korea's semiconductor industry ecosystem."

System semiconductors are the answer?

According to South Korean experts, the solution to this problem is to "cultivate the system semiconductor industry."

The so-called system semiconductor is a kind of semiconductor with the functions of data processing, communication, transformation and so on. It has a wide industrial chain and is composed of Fabless and Foundry. Because of the high added value, customized production can be carried out, which is weakly affected by market conditions, and stable income can be guaranteed.

Recognizing the importance of system semiconductors, the Korean government began to launch the system semiconductor training strategy in 2019. Academia and semiconductor industry for the above objective evaluation is: "there is no obvious effect." Although there is a view that the barriers to entry into system semiconductors are high and require a certain amount of technology accumulation, some people in the industry continue to point out that "the support scale is too small and the systematic strategy is not perfect".

A relevant person of a South Korean Fabless enterprise pointed out: "Silicon Works is the only Fabless enterprise with sales of more than 1 trillion won, which is a defect of the Korean system semiconductor industry."

Some experts pointed out: "in terms of the competitiveness of system semiconductors, South Korea lags behind Taiwan of China." Taiwan's system semiconductor industry is supported by TSMC, a leading foundry in the world. As far as Fabless is concerned, in terms of sales volume, there are companies such as MediaTek (the world's largest smartphone AP) and Novatek (a famous display chip manufacturer). When it comes to packaging, Taiwan has ASE, ranking first in the world, and even the strength of controller manufacturers such as Lianqun can not be ignored.

In terms of Foundry, although South Korea's Samsung Electronics ranks second in the world, it is difficult to catch up with TSMC. TSMC invests about 30 trillion won (or more) every year, and Samsung Electronics is said to invest about 10 trillion won a year. A person from the Korea Semiconductor Industry Association pointed out: "to at least increase the deduction rate of equipment investment to the same level as the United States (40%), we should provide incentives for investment and encourage investment."

It is also pointed out that Taiwan has formed an industrial chain centered on TSMC, and South Korea needs to, like Taiwan, create an ecosystem centered on large enterprises such as Samsung Electronics. "in order for Samsung Electronics and SK Hynix to cultivate and cooperate with Fabless enterprises and packaging enterprises, it is necessary to study the Industrial restriction Act and increase tax incentives again," said Park, a professor in the Department of Integrated Electronics Engineering at Hanyang University in South Korea.

According to recent reports, the South Korean government has also announced the expansion of tax breaks and a 1 trillion won ($883 million) loan to support the chip industry through the current challenging operating environment.

According to the plan, the government will provide tax relief for relevant enterprises and expand a package of financial and infrastructure support. Among them, the maximum tax deduction rate for investment in semiconductor R & D and equipment will be raised to 4050% and 1020%. Samsung Electronics, SK Hynix and other companies are expected to invest 510 trillion won (about 3 trillion yuan) within 10 years and 41.8 trillion won this year.

In addition, the government also plans to set up a new special fund for semiconductor equipment investment of 1 trillion won to support enterprise equipment investment at low interest rates. The government predicts that if the plan is implemented smoothly, South Korea's annual semiconductor exports will increase from US $99.2 billion last year to US $200 billion by 2030, and related jobs will increase to 270000.

The government will increase the capital expenditure tax credit for large companies engaged in "key strategic technologies" such as semiconductors from the current maximum of 3 per cent to 6 per cent between the second half of 2021 and 2024, South Korea's Ministry of Industry, Trade and Resources said in a statement. The South Korean government will also provide about 1 trillion won in long-term loans to increase the contracted production capacity of 8-inch wafer chips, as well as investment in materials and packaging.

Equipment and materials are beginning to dawn.

Although the previous article talked about some shortcomings and risks of Korean semiconductors, in fact, Korean semiconductors have made a lot of progress in the past few years, especially after two years of Japanese sanctions. their achievements in equipment and materials are still very impressive.

From the previous report of Semiconductor Industry Watch, "Korean Semiconductor Industry has made a fortune in silence", we can see that after the trade situation between Japan and South Korea has changed, supporting equipment investment in key foundry foundries has become one of the South Korean government's "vision and strategy for the system chip industry". Under the trend of localization, South Korean equipment manufacturers have also grown-the South Korean government announced in July 2019 that it plans to provide a budget of 1 trillion won a year to support the localization of semiconductor materials and equipment.

According to relevant statistics, there are a total of 57 semiconductor and panel equipment companies listed in South Korea, which does not include South Korea's largest semiconductor equipment company, SEMES, which is also a company under Samsung Group.

Take stock of South Korean semiconductor equipment manufacturers, which own PSK, which has the largest market share in photoresist stripping machines and even beat the American equipment giant Lam Research. Related analysis shows that PSK is the only manufacturer of hard mask strippers dedicated to hard masks, and because of immature development, competing companies strive to mass-produce products with comparable functions.

At the same time, shipments of semiconductor components produced by South Korean companies increased overall, especially in the United States and China. Last year, South Korean exports of semiconductor components surged 34 per cent to $245 million, making it the fourth largest exporter in the sector.

When it comes to materials, according to a report by the Nikkei in February this year, South Korea has begun to popularize home-made products of semiconductor-related materials. According to data released by the Korea Trade Association, South Korea's imports of hydrogen fluoride from Japan have decreased by 75% since 2020 compared with 2019. Imports of hydrogen fluoride from overseas also fell by 50% as a whole.

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 in the entire supply chain. In 2021, a budget framework of 2.2 trillion won, which will increase by 30% over the previous year, will be set up to subsidize R & D expenses of enterprises. Cutting-edge technology development areas will be designated and tax incentives will be set up to promote investment at home and abroad in South Korea. According to Nikkei, now Japanese semiconductor material manufacturers are also increasing production in South Korea.

Under the influence of geopolitics and epidemics in the past few years, China, the United States, Japan, the European Union and even South Korea have all begun to launch semiconductors. What kind of results can be achieved in South Korea's big plan? Let's wait and see.