South Korea is contemplating establishing a government-funded semiconductor company, the Korea Semiconductor Manufacturing Company (KSMC), to bolster its chipmaking capabilities and compete directly with Taiwan’s TSMC. The proposal comes as the technological gap between Samsung Foundry and TSMC widens, with TSMC securing a commanding lead in advanced process technologies.
The Growing Divide: TSMC vs. Samsung
While TSMC recently reported a 60% yield in the trial production of its 2nm process, Samsung Foundry has struggled to achieve similar success with its 3nm GAA technology. This disparity has allowed TSMC to dominate the global market, consistently increasing its market share and solidifying its position as the world’s leading contract chip manufacturer.
To address this imbalance, South Korea is exploring the creation of KSMC, which aims to foster a balanced semiconductor ecosystem, supporting advanced and mature process nodes. This initiative mirrors Taiwan’s approach, where TSMC collaborates with other manufacturers like UMC and PSMC, focusing on older lithographies to complement TSMC’s cutting-edge technologies.
Proposed Investment and Economic Impact
Industry experts estimate that establishing KSMC would require an initial investment of approximately 20 trillion Korean won (around $13.9 billion). However, the potential economic benefits are significant, with projections indicating a 300 trillion Korean won ($208.7 billion) contribution to South Korea’s economy by 2045.
KSMC’s focus would include manufacturing wafers on mature nodes, addressing a structural weakness in South Korea’s semiconductor sector, which heavily relies on Samsung’s advanced nodes under 10nm. By diversifying manufacturing capabilities, KSMC could alleviate pressure on smaller semiconductor firms and stimulate growth across the industry.
Challenges and Concerns
Despite its potential, the KSMC proposal raises several concerns:
- Technological Viability: Can a state-backed entity compete with private-sector innovation in advanced process technologies?
- Client Acquisition: Will KSMC secure enough orders to remain profitable?
- Talent and R&D: South Korea’s semiconductor sector faces a shortage of skilled engineers and insufficient R&D investment, which could hinder KSMC’s progress.
- Regulatory Hurdles: Restrictive regulations, including work-hour limits, may further complicate the rapid development of cutting-edge technologies.
Learning from Taiwan’s Success
The initiative draws inspiration from Taiwan’s semiconductor ecosystem, which supports over 250 fabless companies in Hsinchu Science Park alone. By replicating this model, KSMC could provide resources for smaller firms to thrive alongside industry giants like Samsung and SK Hynix.
For example, SK Hynix CEO Kwak No-jung proposed repurposing Samsung’s older fabs to focus on legacy process technologies. Additionally, providing direct support to suppliers of materials, parts, and equipment could reduce South Korea’s reliance on imports from Japan and Taiwan, lowering production costs for domestic manufacturers.
Government Support and Strategic Vision
Experts emphasize the need for substantial government support, including timely funding, subsidies, and tax incentives, to ensure KSMC’s success. The Semiconductor Industry Association’s Ahn Ki-hyun highlighted the importance of long-term investment to strengthen South Korea’s global leadership in semiconductors.
This approach mirrors the origins of TSMC, established in the 1980s with support from Taiwan’s Executive Yuan. The Taiwanese government’s vision transformed the country into a global semiconductor powerhouse, and South Korea hopes to achieve similar success through KSMC.
A Bold Step Towards Semiconductor Dominance
The proposal for KSMC reflects South Korea’s ambition to reclaim its position at the forefront of the semiconductor industry. KSMC could unlock substantial economic and technological benefits for South Korea by addressing foundational weaknesses and fostering a collaborative ecosystem. However, realizing this vision will require overcoming significant challenges and maintaining a clear, long-term strategy.
If successful, KSMC could serve as a pivotal force in the global semiconductor race, strengthening South Korea’s competitiveness and ensuring its place in the future of advanced technology.
