Korea chip majors may face the biggest challenge in 10 yrs from lengthy down cycle

The down cycle in the chip industry from inventory buildup and slowed demand won’t likely end soon, boding badly for Korean chip majors responsible for driving growth in export-reliant economy, according to a survey of 30 industry experts.

According to the survey results released by the Korea Chamber of Commerce and Industry on Monday, 76.7 percent of the respondents defined current chip situation as a crisis. About 20 percent answered that the Korean chip industry is on the verge of a crisis.

Specifically, most of the respondents, or 58.6 percent, forecast that the current crisis will last beyond 2023.

The downsides are multiple - oversupply and slowing demand, rising inventory, rapid chase by China, and intensifying technology competition between the U.S. and China, said Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics and Trade (KIET), adding that long-term and short-term issues are intertwined and won’t likely solve easily.

A recent downward trend in memory prices has been the ominous sign. DRAM and NAND flash prices have been on the fall for months. Experts and market research institutes predict prices of memory chips to fall more than 10 percent in the third quarter compared to the previous quarter.

Many find the chip industry is looking at the biggest challenge in a decade.

In the past, the ups and downs of the semiconductor industry were mainly due to the temporary deterioration of the external environment and the semiconductor cycle. But when the conflict between the U.S. and China negatively impacting the industry would end is uncertain, while China is catching up fast, said Burm Jin-wook, an electronic engineering professor at Sogang University.

The Federation of Korean Industries (FKI) advised stronger government support.

Taiwan’s gross domestic product (GDP) was $789.5 billion last year, less than half of that of South Korea, but Taiwan has 28 large semiconductor companies with annual sales exceeding $1 billion, 2.3 times more than South Korea’s 12 companies, its report said. Among them, Taiwan’s TSMC and UMC are global top players in foundry business, and Mediatek is the world’s fourth largest fabless chip designer.

The secret of Taiwan’s success lies in the government’s industrial policy that removes regulations and fully supports its high-tech industries, said Yu Hwan-ik, chief of the FKI’s industrial research division.

The average corporate tax burden for the past three years or the ratio of corporate tax to net income was 26.5 percent in Korea, 1.9 times higher than Taiwan’s 14.1 percent.

By company, Samsung Electronics had the highest at 27.0 percent, followed by SK Hynix with 23.1 percent and LX Semicon with 20.1 percent. The corporate tax burden of major Korean companies exceeded 15 percent, but in Taiwan, all major companies stood at below 15 percent, with 10.9 percent for TSMC, 13.0 percent for MediaTek, and 6.1 percent for UMC.

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