Korean semiconductor exports look bleak

China's share of South Korea's semiconductor exports has fallen below 30 percent for the first time in more than 13 years. The semiconductor manufacturing index also fell for the first time in a year and two months. This is due to the growth of Chinese semiconductor companies and the impact of China's economic slowdown.

In addition to Samsung Electronics' recent poor performance, the election of U.S. Republican presidential candidate Donald Trump, who has touted his country's priorities, could cast a dark cloud over the semiconductor industry.

According to an analysis of the information and communication technology (ICT) statistics portal by Kyunghyang Shinmun on November 3, exports to China accounted for 29.4 percent of all semiconductor exports in September. This is the first time since October 2011 (29.7 percent) that the share of semiconductor exports to China, the largest market, has fallen below 30 percent.

This is partly due to Korean companies' local production in China, but also to the strengthening competitiveness of Chinese semiconductor companies and China's economic slowdown.

China has set an economic growth target of “around 5 percent” for this year, but the country has struggled to revitalize its economy due to a series of trade frictions with the U.S. and other countries, as well as a lack of recovery in real estate and consumption. Chinese chipmaker ChanXin Memory Technologies' (CXMT) share of the global DRAM market, which was just 4 percent in 2022, is expected to exceed 12% by the end of the year.

The semiconductor manufacturing index also showed a decline. Last month, the semiconductor production index was 160.3, down 3.0 percent from a year ago. This is the first time in 14 months since July 2023 (-9.9 percent) that the index has declined. “The semiconductor manufacturing index is good, and exports are also doing well,” said Gong Mi-sook, an economic trends and statistics officer at Statistics Korea.

However, the production index itself has been gradually shrinking, and the fact that it has turned into a declining trend means that the semiconductor industry may be slowing down. Semiconductor exports accounted for 20 percent of total exports in the first nine months of this year.

“The decline in semiconductor production could be another downside risk to the domestic business cycle,” said Park Sang-hyun, a researcher at iM Securities. ”If the semiconductor industry loses momentum, the domestic GDP growth rate in the fourth quarter is likely to fall short of expectations once again.”

Indeed, Samsung's earnings have already raised red flags. The company posted an operating profit of less than 4 trillion won in the third quarter of this year from its semiconductor business, leading to the “Samsung crisis” theory.

The external variables are also daunting. The 'Trump risk' is considered the biggest risk factor. Recently, candidate Trump said, “I didn't have to pay a single cent. I could have done it with a series of tariffs,” he said, criticizing Joe Biden's semiconductor law that subsidizes semiconductor companies such as Samsung Electronics and SK Hynix to invest in the United States.

South Korean companies, in particular, could be hit hard by a stray bullet due to Trump's sanctions on exports to China. If the sanctions on memory exports increase in intensity, it is likely to have a negative impact on domestic companies' Chinese production facilities and their sales base for exports to China.

“A short-term contraction in semiconductor exports is expected if high tariffs are imposed on Chinese ICT products,” said the Korea Institute of Industrial Economics and Trade.

In a report titled 'Evaluation of Export Performance in the "Third Quarter of 2024 and Outlook for the Fourth Quarter," the Export-Import Bank of Korea said that “demand for high-bandwidth memory (HBM) is steadily increasing, but demand growth for consumer memory and general-purpose DRAM is slowing down. All in all, semiconductor export growth is expected to shrink slightly.”

※This article has undergone review by a professional translator after being translated by an AI translation tool.