South Korea's semiconductor 'expansion war' needs strong roots for true 'semiconductor power'

South Korea's semiconductor materials, parts, and equipment (MPE) sector is facing a critical juncture as companies grapple with a global chip shortage and intense international competition. While some firms like Isu Petasys, a server board manufacturer, are expanding their facilities, and ISC, a maker of semiconductor test sockets, plans to increase production in Incheon and Vietnam, a significant portion of domestic MPE companies are falling behind in the global "expansion war."

The financial health of these companies is a major concern. The average operating profit margin for 43 MPE firms with a market capitalization exceeding 500 billion won was only 17% in the first quarter, a mere 1% point increase from the previous year. This limited profitability, despite soaring chip prices, means many lack the capital for necessary investments. Furthermore, financial institutions are raising the bar for corporate loans, citing domestic and international uncertainties.

This situation is particularly worrying given South Korea's dominant position in the global memory semiconductor market, supplying over 70% of the world's output. However, the self-sufficiency rate for MPE is only around 30%. The country remains heavily reliant on the U.S. and Europe for design and core equipment, Japan for advanced materials, and China for key raw materials. This fragile structure raises concerns that aggressive investment plans by giants like Samsung Electronics and SK Hynix could primarily benefit foreign MPE suppliers.

The article points to China's concerted national effort in developing its MPE sector, exemplified by NAURA, a company formed a decade ago through government initiatives, which has grown to become a global top 5 or 6 player. Recent reports of Chinese companies localizing high-performance lithography equipment have sent ripples through the industry. The piece questions how South Korea can outpace China's advancements when it is still waiting for production schedules from established players like ASML of the Netherlands.

To truly solidify its status as a semiconductor superpower, South Korea must foster a robust MPE ecosystem. The article calls for comprehensive government support for technological self-sufficiency and facility expansion, urging the use of increased tax revenues from the current semiconductor boom to secure core technologies and facilitate global expansion. Missing this opportunity, it warns, could jeopardize the nation's standing in the vital semiconductor industry.