[Editorial] Chip shock rattling the economy

The government and politicians must provide full support to facility and R&D investment in chips and talent grooming.

Samsung Electronics confirmed its weakest three-month operating profit in eight years for the fourth quarter. The chip-to-home appliance maker’s operating profit plunged 69 percent to 4.31 trillion won ($3.5 billion) from the same period a year ago. Income from chip operation stopped at 270 billion won, off 97 percent from the previous year and the weakest fourth-quarter score since 2008. It barely has avoided a loss. Chips account for 60 to 70 percent of operating income for the electronics behemoth who nevertheless reported its best annual revenue of 302 trillion won for 2022.

The chip business has been in a down cycle since the latter half of last year. Still, the results of Samsung were a disappointment. The slowdown will likely continue throughout the first half. Analysts predict the chip division of the company could incur an operating loss close to a billion dollars in the first half of the year.

The chip shock of Samsung Electronics is not just a corporate issue. Chips are Korea’s No. 1 export item, accounting for 19 percent of last year’s exports. Their weight in the Korean economy is predominant. Historically, when the chip cycle entered a lengthy slump, the Korean economy also suffered, particularly when it coincided with the 1998 Asian financial crisis and the 2008 global financial crisis.

The chip sluggishness has already spread to the broad economy. According to Statistics Korea, industrial output in December fell 1.6 percent from the previous month in the biggest dip in 32 months. Facility investment tumbled 7.1 percent. The leading indicator measuring business prospects has been sinking for sixth straight months. The International Monetary Fund (IMF) readjusted its growth outlook for Korea this year to 1.7 percent, down 0.3 percentage points from its last estimate in October. The downgrade came while the IMF upped its global growth outlook to 2.9 percent from the previous 2.7 percent.

A chip slump calls for grave awareness. We cannot afford to wait around till the up cycle arrives. The contest over semiconductors is getting fiercer. The U.S. and other countries are making astronomical investments in their domestic chip industry.

Samsung Electronics has reigned over the memory segment over the last 30 years, but it is being closely chased by American and Chinese competitors. The gap with foundry leader TSMC is widening. A more aggressive mindset is needed to turn crisis into opportunity. The government and politicians must provide full support to facility and R&D investment in chips and talent grooming. The industry must be more aggressive. Korea must defend its prized chip industry at all costs.