Car-Semiconductor Alliances... Market Landscape Change Predicted

Entering the Stage of Vertical Integration Covering the Automotive Value Chain
Restructuring Semiconductor Supply Chain Centered on the US
Korea's Urgent Need to Strengthen System Semiconductors

[Image source=Reuters Yonhap News]

[Asia Economy Reporters Kwon Jae-hee and Kim Heung-soon] Ford and General Motors (GM), two major American automakers, have officially announced their entry into the semiconductor industry. Amid significant shifts in the automotive sector driven by electric vehicles and autonomous driving, this move marks a departure from traditional manufacturing companies and aims to achieve vertical integration encompassing the entire automotive value chain. This is expected to have a considerable impact on both the automotive and semiconductor industries. The announcement also draws attention as it comes amid President Joe Biden’s emphasis on fostering the domestic semiconductor industry from a national security perspective.

◆ First car-semiconductor partnership... accelerating vertical integration = On the 18th (local time), Ford announced a strategic partnership with the U.S. foundry company GlobalFoundries to expand the supply of automotive semiconductors. This is considered the first direct partnership between an automaker and a semiconductor company.

Ford stated, "Ford and GlobalFoundries will increase supply for Ford’s vehicle lineup and collaborate on research and development (R&D) efforts," adding, "This is an important step in our plan to vertically integrate key technologies."

On the same day, GM announced it would collaborate on semiconductor development with Qualcomm, TSMC, Renesas, ON Semiconductor, NXP, Infineon, and others. GM President Mark Reuss said, "We are working to build close relationships with multiple semiconductor companies to produce chips capable of handling more functions in vehicles," and added, "Within the next few years, we will consolidate the types of semiconductors used in vehicles into three categories."

Currently, GM uses various semiconductors in its vehicles, but consolidating them into three types would reduce the variety of semiconductors GM orders by 95%, making it easier for manufacturers to meet GM’s demands. This is also expected to increase profit margins.

The automotive industry’s move into the semiconductor sector is widely analyzed as a step toward vertical integration encompassing the entire value chain from a long-term perspective. In the past, the automotive industry controlled inventory and maximized production efficiency through just-in-time production systems, but the semiconductor supply shortage triggered by COVID-19 exposed vulnerabilities. As just-in-time production failed to reflect changes in the business environment, vertical integration in the automotive sector has accelerated rapidly.

In fact, the losses incurred by the automotive industry due to this are enormous. Consulting firm AlixPartners estimated that losses caused by semiconductor shortages in the automotive industry amount to $210 billion (approximately 248 trillion KRW). Last month, U.S. automakers reported a 33% decrease in third-quarter sales due to production losses from semiconductor shortages, which is half the level compared to the same period last year. GM CEO Mary Barra had predicted in October that the semiconductor shortage would continue until the second half of 2022.

[Image source=Yonhap News]

◆ Restructuring semiconductor supply chains centered on the U.S. = Some interpret this as part of the Biden administration’s plan to restructure semiconductor supply chains centered on the U.S. to address the ongoing semiconductor shortage this year.

The Biden administration is pushing for a semiconductor alliance among South Korea, the U.S., Japan, and Taiwan to reduce dependence on China. Alongside Taiwan’s TSMC and U.S. Intel investing $12 billion and $20 billion respectively to build foundry production lines in Arizona, Samsung’s official announcement of a $17 billion (about 20 trillion KRW) new foundry investment in the U.S. fits into this context.

◆ South Korea urgently needs to strengthen system semiconductor competitiveness = With the automotive industry formalizing its entry into the semiconductor sector, the semiconductor industry’s calculations have become more complex. Two leading American automakers have partnered with semiconductor companies that compete with Samsung Electronics.

Samsung Electronics currently supplies its self-developed automotive application processor (AP), the Exynos Auto, to some automakers such as Audi and Volkswagen. It also manufactures vehicle semiconductor chips designed by Tesla on a contract basis. Compared to its mainstay DRAM production, the share of automotive semiconductors is known to be minimal. However, the industry expects Samsung to increase R&D and investment to strengthen competitiveness in this field, which has significant growth potential ahead of the electric and autonomous vehicle era.

Samsung Electronics Executive Director Lee Jong-woo said at the International Solid-State Circuits Conference (ISSCC) meeting, known as the "Semiconductor Olympics," on the 17th, "We supply semiconductors to some automakers and are actively conducting related internal research," adding, "However, because stability is paramount in the automotive industry, testing takes much longer than for other products." He continued, "Although we may not show remarkable results in this field immediately, there will be visible progress next year and the year after," and added, "Samsung Electronics has memory, foundry, and system LSI divisions, so there are many opportunities to create technological synergies. We can have strengths in new fields such as automotive."

This content was produced with the assistance of AI translation services.