[Insight & Opinion] In Search of the Second Semiconductor

The KOSDAQ index posted the highest growth rate among global stock markets in the first quarter of this year. Leading the stock price surge were companies related to the "secondary battery" industry. The top company in net purchases by individual investors was POSCO, which has ventured into the secondary battery business. Interestingly, the stock prices of companies in the "secondary battery" industry and those related to "bio" show an inverse relationship. When the stock prices of secondary battery-related companies pause, the stock prices of bio-related companies rise. This is due to proactive investors who are willing to take risks and continuously seek a second semiconductor industry.

The significance of semiconductors in our economy goes without saying. The biggest reason for the trade deficit that has continued since March last year is the slump in the semiconductor industry. Our economy's excessive dependence on semiconductors is problematic. Finding a second semiconductor industry is important not only for investors but also at the national level. The characteristic of our semiconductor industry is that it dominates a rapidly growing market with advanced technology, leading to overwhelming market share and huge profits. Who can succeed semiconductors? Considering the market growth rate, both batteries and bio can be called the "second semiconductor." The global biopharmaceutical market is estimated to grow at an average annual rate of 9%, reaching $505 billion by 2026. The secondary battery market is also expected to grow about eightfold over the next decade due to the expansion of electric vehicle adoption, reaching around $350 billion by 2030. With such bright prospects, expectations are high. President Yoon Suk-yeol declared the bio sector a national powerhouse, aiming to make bio and health the second semiconductor. Secondary batteries, along with semiconductors and displays, are one of the three major national advanced strategic industries. The goal is to increase the global market share to 40% by 2030 and leap to the number one position worldwide.

The reality is somewhat distant from these hopes. Let’s first look at secondary batteries. Based on our technological capabilities, the potential of the secondary battery industry is greater. However, the market structure and characteristics differ from those of semiconductors. Secondary batteries are decisively influenced by government regulations and subsidy systems. Therefore, the size of the domestic market is crucial. Apart from Hyundai and Kia, there are no large electric vehicle manufacturers domestically. It is uncertain whether the battery market can become a profit-maximizing oligopoly structure like semiconductors. The entry barriers are low, competition is fierce, and profitability is currently low. LG Energy Solution, which boasts the best technology in the cathode material market, has never exceeded a 10% operating profit margin. The fact that raw material costs account for nearly 70% of production costs also limits profitability. Another point is that the market leaders are not battery companies but automakers. Tesla is even planning to produce its own batteries. In terms of profitability, bio looks better. The operating profit margins of Celltrion and Samsung BioLogics are already around 30%. However, they excel mainly in production capacity. Of course, receiving raw materials and manufacturing finished products is not something just anyone can do. In the bio industry, Korea possesses both technical manufacturing capabilities and price competitiveness. If satisfied with the generic drug market, there is no problem. But the government’s goal of developing new drugs with annual sales exceeding 1 trillion won cannot be achieved by manufacturing capacity alone. Long-term, new drug development capabilities are ultimately necessary.

Pfizer earned 70 trillion won from COVID vaccines and treatments. Currently, Korean companies are at a stage where cooperation with multinational pharmaceutical companies is necessary. There are still few tangible achievements in overseas expansion. Bio and batteries, along with semiconductors, are literally the future of humanity. The outlook is certainly bright. But at least for now, expectations are far ahead of reality. That is the nature of the stock market and the corporate world.

Sangcheol Kim, Economic Columnist

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