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[Market Eye] Yoon agonizes over tech policy as chip arms race intensifies

President-elect Yoon Suk-yeol is seen presiding over a meeting with representatives of South Korea's business circles on Wednesday. (Courtesy of President-elect Yoon Suk-yeol's transition committee)
President-elect Yoon Suk-yeol is seen presiding over a meeting with representatives of South Korea's business circles on Wednesday. (Courtesy of President-elect Yoon Suk-yeol's transition committee)
The incoming government to be led by President-elect Yoon Suk-yeol is at a crossroads over how its policy support to nurture the domestic chip industry will take shape, as the global chip arms race and state-led support intensifies.

On Thursday, presidential transition committee deputy spokesperson Kim Gi-heung told reporters that the committee was briefed about a proposal to establish a state-run research hub, tentatively named Nano Semiconductor Research Institute.

Kim, however, said the committee’s feasibility review about the research hub has yet to start.

The new research hub, proposed by the academic community in January, is meant to forge a centralized semiconductor research base for cutting-edge nano electronics technology as the relevant research infrastructure across Korea is largely dispersed.

The entity, which could be a Korean equivalent to the Belgium-based IMEC, will run a facility with a test bed of 12-inch wafer fabs, an extreme ultraviolet lithography equipment, and at least 300 researchers, according to Lee Byoung-hun, an electrical engineering professor at Pohang University of Science and Technology in January. Lee also called for a top-tier nano chip research hub.

But Kim’s remark on Thursday indicates that the plan, which could involve a 10 trillion won ($8 billion) budget, seems to be lower down on the committee’s list of priorities.

The news comes amid a series of pledges by Yoon to support the chip industry, as the world recognizes the commodity as national strategic assets that can address the chip shortage plaguing industries around the world.

Earlier this week, Yoon’s transition committee pledged to refurbish the chip fabs for academic purposes and to be run by a number of institutions including Daejeon-based National NanoFab Center and Suwon-based Korea Advanced Nano Fab Center.

Also in April, Yoon’s committee pledged to provide more government subsidies for chip plant expansion, streamline regulatory processes for private-sector chip investment, expand college programs to nurture talent and bolster the recruitment of experts.

Moreover, Yoon’s nomination of Lee Jong-ho, electrical and computer engineering professor at Seoul National University, as science minister indicates that semiconductor chips are likely to be one of the top agendas in the incoming conservative Cabinet.

Korea is home to memory chip powerhouses such as Samsung Electronics and SK hynix, and the world’s second-largest semiconductor foundry is also run by Samsung.

The country, however, has suffered chronic talent shortages and external uncertainties over the past few years, including the COVID-19 pandemic, the United States-China trade war, as well as the Russian invasion of Ukraine and a lockdown in Shanghai in the past few months.

In February, the Korea Semiconductor Industry Association, a lobby group, showed that Korean firms are poised to invest 56.7 trillion won in 2022, up 10 percent from the 2021 spending, in order to address the shortcomings in the chip industry.

Korea also passed its own version of the Chips Act, effective in July, to provide a tax break for facility investment and tax credit for research and development. But the numerical figures on the projected total state spending was not unveiled in the act, as was done in similar acts created to support chip industries in the United States, China and Europe.

The so-called CHIPS for America Act, which awaits a House of Representatives approval, would cost $52 billion to foster the growth of US chipmakers in five years, in response to China’s $1.4 trillion funding scheme from 2020 through 2025. Europe also seeks to mobilize 43 billion euros ($46.9 billion) of policy-driven investment with its own Chips Act until 2030.

In 2021, Korea proposed a plan to invest a combined 510 trillion won by 2030 to secure a supply chain, but the move is not legally binding.

Meanwhile, the global semiconductor chip shortage is expected to show signs of easing during the second half of 2022, as the demand-supply gaps began to decrease, according to a report by Counterpoint Research on Wednesday.

“Last year, supply tightness dove-tailed with the rebound in consumer and business demand causing a lot of headaches across the supply chain. But over the past few months what we’ve seen is demand softening which has intersected nicely with higher inventories,” noted Dale Gai, director of Counterpoint Research’s semiconductor and components practice.

On the other hand, Korean semiconductor firms appear to be behind in the chip tech race, while its competitors are looking to benefit from the chip industry recovery.

For example, progress has been sluggish in advancing toward mass production of Samsung’s latest cutting-edge memory chip processing technology, including those for 14-nanometer DRAM chips and 176-layer NAND chips, according to Do Hyun-woo, analyst at NH Investment & Securities.

The tech giant’s chip yield under the most-advanced 3-nanometer and 4-nanometer processing for its contract-based chip manufacturing business is also expected to remain low, due to higher level of difficulty in the new process compared to competitors like TSMC, the analyst said.

“Samsung has been slow to advance its memory chip processing technology and its yield of foundry business has remained low,” Do wrote in a note Thursday. “This will benefit the global memory chip industry across the board, and benefit competitors in foundry business.”

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