Semiconductor competitiveness depends on supply capacity: KCCI report

[Image source: Gettyimagesbank]

Providing subsidies for 30 percent of facility investment costs to semiconductor manufacturers will help reduce product costs by up to 10 percent, showed a recent report.

The Korea Chamber of Commerce and Industry (KCCI) and Deloitte Anjin LLC released a report on Thursday to enhance semiconductor supply capacity and cost competitiveness in South Korea.

According to the report, providing subsidies for 30 percent of equipment investment costs in the semiconductor industry can reduce production costs by up to 10 percent.

This is because depreciation costs, which account for about 40 percent of operating expenses in the capital-intensive industry, are offset by the subsidies.

The increased operating profits resulting from cost savings can lead to higher corporate tax payments, allowing the government to collect some of the subsidies through tax revenues, the report said.

“The core of the semiconductor industry is production capacity and cost competitiveness,” the report said. “It is crucial to help companies realize economies of scale as early as possible through subsidies for capital investment.”

The report also analyzed the factors behind the supply growth of three major memory chip companies, Samsung Electronics Co., SK hynix Inc., and Micron Technology Inc.

It found that the contribution of their facility expansion to supply growth surged from 8 percent in 2018-2020 to 53 percent in 2020-2022, while the contribution of technological advancements plummeted from 92 percent to 47 percent in the same periods.

This shift indicates that the influence of infrastructure, such as factory facilities, has grown significantly as technological competitiveness has leveled off.

The report further noted that as the complexity and physical limits of technological development increase, expanding supply capacity through facility expansion has become a more critical factor in securing semiconductor production capabilities.

This underscores the growing importance of substantial capital investment and securing the necessary funds for such investments.

Major advanced countries are already providing enormous subsidies to strengthen semiconductor competitiveness.

The United States has allocated $39 billion for subsidies, the European Union has earmarked 43 billion euros, and Japan has set aside 2 trillion yen for production facility subsidies.