[The Fierce Semiconductor Battle] "If You Delay, It's Over" Rapid Moves by Foreign Companies... Critical 'K-Semiconductor' (Comprehensive)

$500 Billion Loss Worldwide Due to Semiconductor Shortage After COVID-19 Pandemic
Estimated 580,000 Units of Vehicle Production Disrupted... Annual Total Likely to Exceed 1.3 Million
Chip Shortage's Butterfly Effect Spreads Across Global Economy
Big Overseas Corporate Deals Flood In... But Korea's Semiconductor Expansion Stalled

[Asia Economy Reporters Sunmi Park, Daeyeol Choi, Hyeyoung Lee, Jinho Kim] Over the two years following the COVID-19 pandemic, the global semiconductor chip shortage has caused companies to suffer losses exceeding approximately $500 billion (about 596 trillion KRW). In particular, the severe supply-demand imbalance in automotive semiconductors has inflicted enormous damage not only on domestic and international global automobile industries but also on related upstream and downstream parts suppliers.

With widespread forecasts that the supply-demand imbalance may continue for a considerable period, major global companies, viewing this as a 'market of opportunity,' have rushed to enter the automotive semiconductor market, signaling an industrial restructuring.

While global companies backed by government support are actively engaging in mergers and acquisitions (M&A) and investments, Korea's K-semiconductor, which supports the Korean economy, is struggling to accelerate its growth. With the presidential election scheduled for March, it is difficult to announce large-scale investment plans, raising concerns that Korea's competitiveness may lag behind rivals who are aggressively expanding and investing on a large scale.

'Chip Shortage' Leads to $500 Billion Losses

According to a report by Deloitte Global on the 22nd, it is estimated that over $500 billion in losses occurred among semiconductor companies and their customers due to the semiconductor supply shortage from 2020 through last year. The 'absence of chips' has shaken the global finished goods market.

Deloitte stated, "A single semiconductor chip can determine the sale of tens of thousands of dollars worth of finished products," and forecasted, "Amid supply chain instability, the semiconductor industry's position will expand further, and unprecedented competition will unfold in securing workforce, facilities, customers, and entering advanced processes."

Semiconductor industry sales, which surpassed $500 billion for the first time last year, are estimated to exceed $600 billion (about 716 trillion KRW) this year. Market research firm Omdia expects the semiconductor sector's growth rate to slow to 4.2% this year from 21.1% last year. However, the automotive semiconductor market is projected to record double-digit growth, such as 17.8% this year, through 2025.

The disruption in the supply of automotive semiconductors has led to a shortage in supply for finished car manufacturers, resulting in a decrease of 71,000 units in new car registrations in South Korea in the third quarter of 2021 compared to the second quarter. The photo shows the finished car parking lot at Kia Motors Gwangju Plant 2 in Seo-gu, Gwangju. Photo by Yonhap News.

Automotive Industry Hit Hard as Global Companies Expand

The automotive industry is one of the sectors most affected by the semiconductor shortage. Although semiconductor foundries such as Samsung Electronics and TSMC are operating at 100% capacity and production costs have increased, supply still cannot meet demand.

According to Deloitte, the semiconductor supply disruption caused approximately $210 billion (about 250 trillion KRW) in lost automotive-related sales last year.

Until now, only about five to six companies supplied automotive semiconductors due to low profitability, but the rapid growth of the electric vehicle market and surging demand for high-performance automotive semiconductors are drastically changing the landscape. Intel, aiming to reclaim the 'semiconductor throne' lost to Samsung Electronics, has announced its entry into automotive semiconductor foundry (contract manufacturing). Samsung Electronics is also increasing its presence by consecutively launching next-generation automotive system semiconductor products last year and supplying them to global brands.

Although global companies are rushing into the automotive semiconductor market, it is expected to take time to stabilize supply. The finished vehicle industry anticipates production disruptions due to supply issues will continue this year.

According to market research firm AutoForecast Solutions, as of this week, the volume of disrupted production is estimated at 577,900 vehicles worldwide. In North America, including the U.S., the number was less than 100,000 vehicles at the beginning of this month but has more than doubled in about two weeks. Additionally, as of the end of last month, the expected annual production loss due to semiconductor supply issues increased from 950,000 vehicles to over 1.3 million vehicles recently.

Opinions differ somewhat on the recovery timeline. Hyundai Motor and U.S. General Motors (GM) expect recovery around the second half of this year, while Tesla and Volkswagen anticipate the semiconductor shortage will persist throughout the year.

Big Deals Abound... But Korean Semiconductor Growth Stalls

"The semiconductor technology war is a speed race where a half-year gap determines victory or defeat. If support is provided after a preliminary feasibility study in 2-3 years, overseas competitors will have already advanced far ahead." (Lee Jung-bae, President of Samsung Electronics, Semiconductor Investment Activation Meeting on the 16th)

According to the semiconductor industry, neither Samsung Electronics nor SK Hynix, which completed the first phase of Intel's NAND business acquisition at the end of last year, currently has M&A plans that could raise their industry rankings. Samsung Electronics, aiming to be the number one in the system semiconductor industry by 2030, has left the possibility of M&A open, but global countries are raising barriers, making it difficult to proceed.

Only small M&A attempts continue within the domestic ecosystem, such as Doosan Group's pursuit of acquiring Tesna, Korea's number one semiconductor back-end testing company and a Samsung Electronics partner.

Meanwhile, overseas competitors are actively expanding their presence worldwide, backed by full government support to grow the semiconductor industry. Intel, which lost the global semiconductor sales top spot to Samsung Electronics last year, declared its entry into the automotive semiconductor market by establishing a dedicated automotive division in its semiconductor foundry business.

With the automotive semiconductor market expected to maintain double-digit growth for five consecutive years and grow from $50 billion (about 59.8 trillion KRW) in sales last year to $84 billion by 2025, Intel aims to preempt the market ahead of Samsung Electronics and TSMC. Additionally, Intel announced a $20 billion investment to build two advanced semiconductor factories in Ohio, USA, and a $5.4 billion acquisition of Tower Semiconductor, the world's eighth-largest foundry based in Israel.

TSMC, the world's number one foundry, plans to execute its largest-ever investment of $44 billion (about 52 trillion KRW) this year. Following a $12 billion investment in a foundry factory in Arizona, USA, it is also constructing a semiconductor factory in Japan in partnership with Sony.

China, pursuing a 'semiconductor rise' with a goal to increase semiconductor self-sufficiency to 70% by 2025, has SMIC, its largest foundry, deciding on a record $5 billion investment this year. The Chinese government supports semiconductor investments to the extent that even home appliance companies are heavily investing.

Active Institutional Support Essential for K-Semiconductor Growth

Experts agree that for the K-semiconductor industry, expected to receive 57 trillion KRW in investment this year, to gain growth momentum without overseas M&A, more active institutional support is needed, ranging from infrastructure development to tax benefits.

Jae-geun Park, Chairman of the Korea Semiconductor Display Industry Association, said, "Regulatory relaxation on infrastructure development should be the most important topic before the implementation of the National Advanced Strategic Industry Special Act (Semiconductor Special Act) in July," adding, "Regulatory easing and tax benefits related to industrial complex development should be adjusted in a way favorable to companies."

Active government roles are also necessary in overseas M&A. Jong-ho Lee, Director of the Semiconductor Joint Research Center at Seoul National University, said, "The government can intervene in the approval process of M&A, and as countries are raising barriers against semiconductor M&A, our government needs to respond more actively than it currently does."

Addressing the shortage of core skilled personnel is also essential for K-semiconductor growth. Seong-cheol Kang, Research Fellow at the Korea Semiconductor Display Technology Society, stated, "Specialized workforce training is paramount, but this aspect is insufficiently reflected in the Semiconductor Special Act to be implemented in July," and suggested, "As global advanced countries fiercely compete to dominate semiconductor supremacy based on national support, our government must also take a direct and active role." Dong-hwi Cho, Professor of Embedded Systems Engineering at Incheon National University, added, "It is time to find ways to nurture excellent semiconductor talent not only in the metropolitan area but also in regional areas."

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