South Korea, a global leader in semiconductor manufacturing through giants like Samsung, is considering a government-backed initiative to create a new contract chipmaker, tentatively called Korea Semiconductor Manufacturing Company (KSMC). This idea, proposed by experts and academics, aims to address significant gaps in the country’s semiconductor industry and build a more resilient ecosystem.
The Case for a Government-Funded Foundry
The proposal to launch KSMC comes as South Korea faces growing competition in the semiconductor field. Ahn Ki-hyun, from the Semiconductor Industry Association, emphasized that long-term government investment is crucial for maintaining the country’s competitive edge. Experts suggest that an investment of KRW 20 trillion ($13.9 billion) in KSMC could generate up to KRW 300 trillion ($208.7 billion) in economic benefits by 2045.
However, there are concerns over whether such an investment would be enough to make KSMC a profitable and technologically advanced player in the industry. The success of this new chipmaker would depend not only on securing clients but also on developing cutting-edge manufacturing technologies. Another challenge is the lack of fabless software developers in South Korea, which could hinder the development of diverse and competitive chip designs.
Challenges Facing South Korea’s Semiconductor Industry
The proposal for KSMC was introduced at a seminar hosted by the National Academy of Engineering of Korea (NAEK), where experts discussed the challenges facing South Korea’s semiconductor sector. One key issue is the nation’s heavy reliance on Samsung’s advanced manufacturing nodes, particularly those under 10nm. While this has positioned South Korea as a leader in memory chip production, the country struggles with the lack of mature process technologies for logic chips, unlike Taiwan, which has a more diversified semiconductor ecosystem.
In Taiwan, companies like UMC and PSMC support TSMC by focusing on mature and specialty process nodes, ensuring a balance across different sectors of the market. In contrast, South Korea’s semiconductor sector has struggled to replicate this balance, leaving smaller system semiconductor firms with fewer opportunities to thrive. This overdependence on advanced technologies and the widening technological gap with competitors such as Taiwan and the U.S. have created serious vulnerabilities for South Korea’s semiconductor industry.
Proposals for Reform and Growth
At the seminar, several proposals were made to address these structural challenges. SK Hynix CEO Kwak No-jung suggested repurposing Samsung’s older fabs to focus on legacy process technologies, which could help create a more diverse manufacturing landscape. NAEK also recommended a stronger focus on research and development (R&D) efforts, along with financial incentives such as subsidies and tax credits to attract private investments.
Additionally, experts proposed reducing regulatory burdens, particularly those affecting work hours. TSMC’s success, for example, has been partly attributed to its extended work hours, which have allowed for faster development of advanced chip technologies. South Korea could potentially benefit from a similar approach to accelerate innovation.
Learning from Taiwan’s Success
The KSMC proposal draws inspiration from Taiwan’s semiconductor industry, which has become a global powerhouse. In the 1980s, Taiwan’s government recognized the potential of semiconductors and invited Morris Chang to establish TSMC, which now plays a central role in the country’s semiconductor ecosystem. Over 250 fabless companies have thrived in Taiwan’s Hsinchu Science Park, supported by TSMC’s advanced capabilities.
NAEK envisions KSMC as a catalyst for South Korea to replicate Taiwan’s model by fostering smaller companies alongside industry giants like Samsung and SK Hynix. Such an ecosystem could provide the resources and support necessary for smaller firms to compete on a global scale, while also reducing South Korea’s dependence on imports for materials and parts.
