Tax benefits alone not enough for semiconductor investment

Chairman Chey Tae-won [Courtesy of KCCI]

Chey Tae-won, chairman of the Korea Chamber of Commerce and Industry (KCCI) and SK Group, urged the South Korean government to do more to support the country’s semiconductor industry.

“The current concern is that no matter how much money SK hynix Inc. earns, it has to invest more than it makes. The government must do something about this,” the head of Korea’s largest business lobby said during a press conference held on the sidelines of KCCI’s annual Jeju Forum in Seogwipo City, Jeju Island, on Friday.

“It costs 20 trillion won ($14.39 billion) to build a single semiconductor manufacturing plant, or fab. Tax benefits alone are not enough to cover this cost,” he added, expressing his disappointment that the Korean government’s discussions to support the semiconductor industry were only focused on providing tax benefits, rather than subsidies, unlike in competing countries such as the United States and Japan where subsidies are provided.

“In the past, we could create more efficient products by increasing the number of devices per semiconductor chip area (integration density) through research and development (R&D),” Chey said. “But we have now hit the technical limit to meet the market’s demand for performance improvement by increased integration density alone.”

“The ratio of R&D to facility expansion for performance improvement was 9 to 1 in the past but has changed to 5 to 5 recently, highlighting the growing importance of facility investment,” he added.

SK hynix’s high-bandwidth memory (HBM), which dominates the market, is an example of how facility expansion has boosted performance. HBM, a high-performance chip that stacks multiple chips vertically, has increasingly come into the spotlight with the advent of the artificial intelligence (AI) era.

SK hynix posted an operating profit of 2.89 trillion won and an operating profit margin of 23.2 percent in the first quarter of 2024 thanks to the HBM boom.

Chey also said that subsidies were a decisive factor for the company’s semiconductor investment in the U.S. “We have yet to reach a final decision to build a new factory in Indiana… if there are no subsidies, we will have to reconsider our plans.”

SK hynix is pushing to build a packaging plant in Indiana, with an estimated investment of around 5.2 trillion won, and the U.S. government’s support is expected to be around 1 trillion won.

Chey also cited synergies in the AI business as the reason for the recent merger of SK innovation Co. and SK E&S Co, which has attracted a lot of attention.

“AI requires huge amounts of energy,” he explained. “SK innovation has battery energy storage systems (ESS), and SK E&S has hydrogen and power generation businesses. Together, they can become a company that solves the energy problems of AI data centers… and we believed that there was significant growth potential here,” he added.