6 out of 10 Experts Say "Semiconductor Industry Crisis... Will Continue Until the Year After Next"

KCCI Conducts Semiconductor Industry Economic Outlook Survey with 30 Experts
Price Decline Due to Oversupply, Demand Drop, and Inventory Increase
Short- and Long-Term Risks Including China's Technological Catch-Up
KCCI Calls for Diplomatic Efforts and Innovative Measures

Expected Impact of the 'U.S. Semiconductor Act'. Photo by Korea Chamber of Commerce and Industry

[Asia Economy Reporter Choi Seoyun] Amid growing concerns over the semiconductor industry, including semiconductor exports in August recording negative growth (-7.8%) for the first time in 26 months, a survey result has emerged indicating that this crisis situation is unlikely to end in the short term.

According to the results announced on the 5th by the Korea Chamber of Commerce and Industry, which recently surveyed 30 domestic semiconductor experts on their perception of the domestic semiconductor industry's market conditions, 7 out of 10 experts (76.7%) diagnosed the current situation of the semiconductor industry as a ‘crisis’ (‘early stage of crisis’ 56.7%, ‘midst of crisis’ 20%). Responses indicating ‘just before a crisis’ accounted for 20%, while those saying ‘not a crisis’ were only 3.3%.

◆Short-term improvement unlikely= Experts predicted that the current difficult situation would not improve quickly. When asked ‘how long they expect this situation to continue’ among experts who diagnosed the current situation as ‘crisis’ or ‘just before crisis,’ the largest group (58.6%) expected it to persist ‘beyond the year after next.’ This was followed by ‘until next year’ (24.1%), ‘until the first half of next year’ (13.9%), and ‘until the end of this year’ (3.4%).

Experts pointed to overlapping short- and long-term external risks as the main causes. Kim Yangpyeong, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, “Risks such as semiconductor oversupply, global demand decline and inventory increase leading to price drops, China’s rapid technological catch-up, and intensified US-China technological hegemony competition are occurring simultaneously, increasing uncertainty in the semiconductor industry,” adding, “Since short- and long-term issues are intertwined, their impact is likely to last for a considerable period.”

In fact, the downward trend in memory semiconductor prices is also showing a serious atmosphere. Prices of DRAM and NAND flash have been declining for several months recently, and experts and market research firms expect memory semiconductor prices in the third quarter to fall more than 10% compared to the second quarter.

Many also opined that the current situation faced by the semiconductor industry is the most severe in the past 10 years. Regarding ‘the current situation compared to the domestic semiconductor industry downturn periods in the past 10 years, namely 2016 (China’s entry into the memory market) and 2019 (US-China trade dispute),’ 43.4% of experts responded that it is ‘more severe than then.’ Responses indicating ‘similar’ were 36.6%, and ‘better’ were 20%.

In 2016, the year when China entered the memory semiconductor market and the THAAD incident occurred, the four-year export growth trend was broken. In 2019, due to the US-China trade dispute and the global semiconductor downcycle, semiconductor exports decreased by about 26% compared to the previous year (from $128.1 billion to $95.2 billion).

Beom Jinwook, a professor in the Department of Electronic Engineering at Sogang University, said, “While past fluctuations in the semiconductor industry were mainly due to temporary external environment deterioration and semiconductor cycles, this phase includes concerns over supply chain competition among major powers with an unknown end and China’s rapidly advancing technological catch-up,” adding, “The industry’s sense of crisis and anxiety is greater than ever.”

For example, last week Apple’s selection of China’s YMTC as a new supplier of memory semiconductors caused a sense of crisis in the domestic semiconductor industry. It is known that the technology gap between Korea and China in the NAND flash segment, which YMTC will supply to Apple, is only about 1 to 2 years.

◆Mixed views of concern and expectation on Chip4 talks and US Chips and Science Act= Regarding the external issues rapidly emerging around the domestic semiconductor industry, such as the ‘Chip4 (Korea, US, Japan, Taiwan) talks’ and the ‘US Chips and Science Act,’ experts’ positive and negative evaluations were mixed.

First, on the impact of the ‘Chip4 talks’ on the domestic semiconductor industry, 36.6% responded ‘positive,’ while 46.7% answered ‘negative,’ suggesting the need for more cautious engagement in the discussions. Responses indicating ‘no significant impact’ accounted for 16.7%.

Professor Park Jinseop of the Department of Convergence Electronics Engineering at Hanyang University said, “Because the semiconductor industry is structured with enormous international division of labor, participation in Chip4 talks is inevitable,” adding, “While opportunities for R&D and supply chain cooperation with global semiconductor companies can be gained, concerns about side effects from intensified US-China competition and China’s backlash cannot be ignored.” However, Professor Park predicted, “Since the technological gap with China in the semiconductor field is still clear and China’s needs are significant, the possibility of immediate damage to semiconductor exports is low.”

Expected Impact of 'CHIP4 Discussions'. Photo by Korea Chamber of Commerce and Industry

Regarding the impact of the ‘US Chips and Science Act,’ 50% had a positive outlook, while 40% had a negative outlook. Responses indicating ‘no significant impact’ were 10%.

Professor Jeong Euiyoung of the Department of Electrical and Electronic Engineering at Yonsei University said, “The Chips and Science Act has greatly increased the possibility of the global semiconductor supply chain rapidly reorganizing around the US,” adding, “Although there are negative factors such as restrictions on investment in China due to guardrail provisions, the benefits from cooperation with the US, which has technological superiority in semiconductor development and design, are also expected to be significant.”

As short-term threats to the domestic semiconductor industry, many experts expressed concerns in the order of ‘global semiconductor demand decline,’ ‘China’s COVID-19 lockdowns,’ ‘global interest rate hike trend,’ and ‘Ukraine war.’

For the most urgent policy tasks to develop the semiconductor industry, experts cited ‘government’s smooth diplomatic efforts such as responding to Chip4’ (43.3%), ‘human resource development’ (30%), ‘expansion of research and development (R&D) support’ (13.3%), ‘expansion of tax and financial support for investment’ (10%), and ‘support for stabilizing the supply chain of semiconductor materials’ (3.4%) in that order.

Woo Taehee, Executive Vice Chairman of the Korea Chamber of Commerce and Industry, said, “It is fortunate that the government last week announced a ‘Strategy to Strengthen Export Competitiveness,’ promising corporate investment and human resource development in semiconductors amid a decline in semiconductor exports, which account for one-fifth of total exports,” but added, “It is a time when more fundamental efforts are needed to maintain a semiconductor super-gap, such as drastic institutional improvements for overseas technology company investments and acquisitions, and active and sophisticated diplomacy among semiconductor competing countries.”

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