Shaking K-Semiconductor... Samsung Halts Investment Amid JY Management Activity Restrictions (Comprehensive)

Fierce Pursuit by Latecomer China... Sweeping Semiconductor Equipment Market

[Asia Economy Reporters Sunmi Park and Jinho Kim] The status of K-semiconductors in China, the world's largest semiconductor market, is declining. As the United States has intensified export restrictions on equipment supplied to Chinese semiconductor companies, K-semiconductor exports to China have taken a direct hit. While Samsung Electronics Vice Chairman Lee Jae-yong's management activities are restricted, hindering the securing of a K-semiconductor super-gap, the latecomer China is emerging prominently in the 'semiconductor rise' backed by aggressive government support. This is why voices are rising that the future of Korean semiconductors is becoming uncertain due to Lee's prolonged absence.

Shaken Status of K-Semiconductors in China

On the 25th, the Federation of Korean Industries analyzed changes in major countries' shares of China's semiconductor import market before and after the start of U.S. semiconductor regulations on China, revealing that Korea suffered the most significant impact.

Compared to 2018, Taiwan's share of China's semiconductor import market increased by 4.4 percentage points and Japan's by 1.8 percentage points last year, while Korea's share decreased by 5.5 percentage points. Korea's decline in market share was even larger than the U.S.'s 0.3 percentage point drop. The U.S. Department of Commerce had imposed restrictions four times from April 2019 to September 2020 on the supply of semiconductors produced using U.S. semiconductor software and equipment to Chinese companies such as Huawei and SMIC.

Even during the period when China's semiconductor imports increased, Korean semiconductor companies did not fully benefit due to U.S. sanctions. Last year, China's semiconductor imports reached $468.6 billion, a 37.2% increase compared to 2018, the year before the U.S. began semiconductor supply restrictions on China. Semiconductor imports from Taiwan and Japan increased by 57.4% and 34.8%, respectively. This is analyzed as a result of Chinese domestic companies and foreign-invested companies in China being blocked from purchasing U.S. semiconductors, leading to increased imports of Taiwanese semiconductor chips.

On the other hand, China's imports of Korean semiconductors increased by only 6.5%. This was due to the suspension of Huawei's purchases of Korean memory chips following U.S. regulations and the decline in memory semiconductor prices, which caused China's total memory imports to decrease by 0.7%. Huawei accounted for 3.2% and 11.4% of Samsung Electronics' and SK Hynix's total sales, respectively, in 2019. Given the strength of K-semiconductors in memory, China's imports of Korean memory chips in 2021 decreased by 13.7% compared to 2018.

Kim Bong-man, head of the international division at the Federation of Korean Industries, analyzed, "Since the U.S. semiconductor supply restrictions on China in 2019, Taiwan, a system semiconductor powerhouse, and Japan, a traditional semiconductor stronghold, have advanced in the world's largest semiconductor market, China. In contrast, K-semiconductors, which focus on memory semiconductors, have seen their status significantly weakened in China."

[Image source=Yonhap News]

Samsung Electronics Halts Investment and M&A

According to industry sources on the 25th, Samsung Electronics remains in a state of 'stillness' alone, unlike semiconductor competitors who are making large-scale investments. The reason is analyzed to be that Vice Chairman Lee Jae-yong, who can decide on large-scale investments ranging from several trillion to tens of trillions of won, cannot fully engage in management despite being released from prison.

In fact, since the approximately 20 trillion won investment decision for the semiconductor factory in Taylor City, USA, made at the end of last year, Samsung Electronics has not announced any significant semiconductor investment plans. Mergers and acquisitions (M&A), another pillar for securing future growth engines, are also practically difficult because Lee is still on parole. From the perspective of global companies, there is a high risk in M&A involving a CEO with legal risks. There is also a high possibility that this issue could arise during reviews by major competing countries. Samsung Electronics has not conducted any large-scale M&A exceeding 1 trillion won since 2017.

For these reasons, there is growing demand for Vice Chairman Lee to be included in the 'special pardon' to be granted on May 8, ahead of Buddha's Birthday. Especially considering the current semiconductor crisis, which is emphasized more than ever, this is seen as necessary. A business community official said, "With the current management structure, which inevitably focuses on short-term performance, Samsung Electronics will find it difficult to decide on large-scale investments. Considering national interests, Vice Chairman Lee must be included in this special pardon."

While Korea Hesitates, Latecomer China Advances Aggressively

As the status of K-semiconductors is declining in the Chinese market, China is sweeping up global semiconductor production equipment to raise its semiconductor self-sufficiency rate.

According to the Semiconductor Equipment and Materials International (SEMI), global semiconductor production equipment sales surged 44% last year to $102.6 billion. This is the result of semiconductor companies worldwide aggressively investing to increase production. Notably, China, which spent $13.11 billion on semiconductor equipment purchases in 2018, more than doubled its spending to $29.6 billion last year, ranking first in the world for equipment purchases for two consecutive years.

China's semiconductor self-sufficiency rate was only 15.8% in 2020, but it is pushing forward its semiconductor rise policy with the goal of raising it to 70% by 2025. In fact, China's semiconductor import volume in the first quarter of this year decreased by 9.6% year-on-year due to increased domestic semiconductor production driven by the semiconductor rise policy.

Although China is a latecomer ranked 6th globally in semiconductor sales last year (sales of $34 billion, 6.1% share), it is rapidly growing thanks to bold government policies and capital support. China's top foundry SMIC announced a new investment of $5 billion (about 6.16 trillion won) in February to expand semiconductor production capacity, and the second-largest company, Hua Hong Semiconductor, is raising about 15 billion yuan (about 2.9 trillion won) through a secondary listing on the Shanghai Stock Exchange to secure investment funds.

Kim Bong-man, head of the international division at the Federation of Korean Industries, advised, "As major countries such as the U.S., China, Europe, and Japan are mobilizing national capabilities to build autonomous semiconductor ecosystems and accelerate supply chain restructuring, the new government launching in May should strengthen policy support such as R&D investment and tax benefits for semiconductor companies to secure a global super-gap for K-semiconductors."

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