With political unrest in South Korea, which has the world’s third-largest semiconductor manufacturing facility after China and Taiwan, the country is staring at a supply chain disruption.
The country holds a dominant position in the DRAM and NAND flash memory market, and companies like Samsung Electronics and SK Hynix have a substantial share in this space.
President Yoon Suk Yeol, declared emergency martial law last week, only to revoke it within hours. His future remains uncertain even as he survived the impeachment motion.
South Korea accounted for 17.7% of the global semiconductor market in 2022, according to the Center for European Policy Analysis (CEPA), a public policy think tank. Nearly two-thirds of the country’s semiconductor exports are to China, Hong Kong, Taiwan and Vietnam.
The East Asian country is known for producing semiconductors smaller than 10 nm, holding 37% of the world’s production capacity.
“Should current political challenges escalate, they could disrupt operations and supply chains, triggering a cascading impact on the production and export of semiconductors, memory chips, and other critical components,” said Prabhu Ram, VP, of Industry Research Group at CyberMedia Research, to AIM.
Investment banking company UBS noted that the market impact tends to be short-lived and the AI supply chain has disproportionately more exposure to Taiwan than South Korea despite the latter being home to key suppliers of HBM chips.
“We estimate that about 50-60% of big tech’s AI capex is focused on Taiwan, and about 5-10% on South Korea,” UBS noted in its recent report.
Semiconductor Landscape
The semiconductor landscape is evolving rapidly, and with competing nations accelerating their advancements in semiconductor capabilities, the global competition is intensifying by the day.
The government policies are also conducive to the growth of the semiconductor industry in South Korea. The ‘K-Semiconductor Strategy’ launched by the government in 2021, aimed to attract $450 billion in investments by 2030 and enhance semiconductor production capabilities.
South Korea's semiconductor exports remain resilient, reaching $12.5 billion again in November. Still year-over-year growth is slowing to levels seen late last year. https://t.co/aWIhiNNqQP pic.twitter.com/bkRxz9lIk2
— Sam Kim (@samkimreports) December 1, 2024
As of 2024, its semiconductor market was valued at $2.8 billion and is expected to grow to $2.9 billion in 2025 and over $4 billion in 2033.
As a manufacturer of fabless firms, Samsung ranks second-largest globally after TSMC. Meanwhile, according to reports, SK Hynix, a leading manufacturer of AI memory chips, is slated to deliver sixth-generation high-bandwidth memory (HBM4) chips, based on 3nm process technology, to Nvidia later next year.
On the AI front, South Korea has been making significant progress. This year, Rebellions, a fabless AI chip startup, raised $124 million in a Series B round, bringing their total funding to $210 million.
Companies in the region are also partnering with big tech companies such as Microsoft. Korean Telecom (KT) Corporation and Microsoft have signed a multibillion-dollar, five-year AI partnership. KT will provide $450 million in network and data centre infrastructure over 15 years while both companies will invest in AI and cloud technologies to advance AI services in South Korea.
Geopolitical Unrest Continues
South Korea’s semiconductor industry has been influenced by U.S. and China tradeoffs in the past. Recently, the US imposed new export restrictions on 140 Chinese companies that target advanced memory chips and chipmaking tools. The Western nation has been asking South Korea to adopt similar curbs.
The US government’s sanctions stem from the anticipated threat of China using advanced semiconductor and AI systems for military modernisation and human rights concerns.
In response, China has also introduced export control on critical minerals for semiconductor manufacturing, like gallium and germanium, which could affect South Korean companies’ operations. The banned materials are widely used in semiconductors, weapons, and electric vehicles.
