Memory chips are the backbone of Korea's semiconductor industry, and Korea's share of non-memory chips is only 5%. Samsung Electronics and SK Hynix are ranked first and third, respectively, in 2022 in the global sales ranking of semiconductor manufacturers. Both are storage giants, with Samsung Electronics ranking first in market share in both DRAM and NAND, and SK Hynix ranking second in DRAM and third in NAND.

However, semiconductor inventories have increased due to slowing demand from smartphones and other effects, and storage chip makers have tried to digest their inventories by cutting prices since the fourth quarter of 2022, with the cost of a 1GB solid-state drive having fallen to $0.107 by the end of 2022, according to Japanese research firm Techno Systems Research. And the downward pressure on prices continues, with total DRAM and NAND prices falling by about 76% and 68%, respectively, during the past nine months from 3Q 2022 to 1Q 2023 alone, according to KB Securities analysts' forecasts.

Against this backdrop, Samsung and SK Hynix, two storage giants with such a high market share, are experiencing major havoc in this industry downward spiral.

In the first two months of 2023, Samsung's memory chip business has lost 3 trillion won, or $2.3 billion, and Samsung expects that the loss may increase to 4 trillion won by the end of the first quarter. The good thing is, in the semiconductor field, Samsung still has foundry business, and profitable, the overall business can still be hedged.

But for SK Hynix, which focuses only on storage, it is worse. 2022 fiscal year SK Hynix's annual revenue was 44.648 trillion won and operating profit was 7.007 trillion won. Although the annual revenue achieved 4% growth, but the fourth quarter of 2022 SK Hynix ushered in the first quarterly operating loss since the third quarter of 2012, 4H2022 revenue of 7.699 trillion won, down 38% year-on-year, and the loss continues. KB Securities analysts forecast that SK Hynix in the first quarter of the year an average loss of about 39,000 won.

As a result, SK Hynix will reduce its investment scale in 2023 by more than half from 19 trillion won in 2022. However, it will continue to invest in mass production of mainstream products such as DDR5, LPDDR5 and HMB3 and markets with growth potential.

But for the two giants, the longer term as well as more difficult issues lie ahead, and that is the US trade policy.

The United States has sought to suppress the development of mainland semiconductors in recent years, first by tightening the chip trade policy, and then jointly with the Netherlands and Japan to propose a "chip alliance" (Chip 4) siege, forcing South Korea to join the alliance. South Korea's attitude is ambiguous, but it is clear what any of its decisions mean, and the essence of the issue is whether to choose the Chinese market or to choose U.S. technology. Although South Korea did not join the alliance, there is no doubt that it is still under the impact of the U.S. ban.

In the semiconductor foundry field, South Korea also occupies a very important seat. Samsung is a major player in the foundry field, and in the field of high-end computer chips, Samsung competes directly with Intel and TSMC, especially Samsung and TSMC, which have been engaged in a fierce race in advanced processes. This race is not only related to the development prospects of these two companies, but also will directly affect the development trend and direction of the entire industry. TSMC occupies more than 50% of the foundry market share, the industry is larger and more dominant, which South Korea is eager to challenge.

TSMC's 3nm process technology is the most advanced technology in the global semiconductor industry in terms of PPA (performance, power consumption and area) and crystal technology. TSMC is making every effort to boost 3nm production capacity, TSMC 3nm production town of Nanke Fab 18 as the main body, has completed Fab 18 Phase V to Phase VIII of a total of four 3nm fabs, the future will depend on market demand to decide whether to build the ninth phase of the 3nm fab. TSMC has announced that it will build the second phase of its 3nm fab in Fab 21 in Arizona, USA, which is expected to enter mass production after 2025.

TSMC's 2nm is also on schedule. According to TSMC's announcement, TSMC is building a 2nm mega-fab Fab 20 in the second phase of Zhuche Baoshan, and will build a total of 4 fabs from Phase I to Phase IV. TSMC is seeking to build a fab site in the second phase of the expansion and development plan of the Taichung Park of TSMC, and will build 2 more 2nm fabs after acquiring the site.

So all together, TSMC in the next five years, light 3nm and 2nm fabs together more than 10, to advanced process monthly capacity of 30,000 wafer fab investment amount of about $ 20 billion, the total investment amount will be more than $ 200 billion.

TSMC's series of aggressive action on other foundries also brought a lot of pressure.

Another Korean foundry, Dongbu Hi-Tek (DB HitTek), is ranked 10th in the exclusive foundry ranking (based on 2022 revenue), but its market share is small, about less than 1%.

In a press release, DB HiTek said that the spin-off of its design business was intended to "resolve conflict of interest issues with customers" in order to "DB HiTeck hopes to emulate Taiwan's TSMC business model by separating its fabless division to become a pure foundry (a chipmaker with no in-house design capabilities).

This is the company's second attempt at a split, with DB HiTek scrapping plans to split its chip design division last September due to strong shareholder opposition, citing the damage to shareholder value that would result from a potential spin-off and public listing of a promising business unit. However, DB Hitek recently said in a regulatory filing that its board of directors agreed to present a proposal to separate its fabless business into a subsidiary at a March 29 shareholder meeting, and that the spinoff, tentatively named DB Fabless, would be 100 percent owned by its parent company DB HiTek.

With all the unfavorable factors, Korea's semiconductor industry is at a crossroads, and on March 15, Korea released a heavyweight semiconductor plan.

On March 15, 2023, at the 14th extraordinary economic and livelihood conference held by the South Korean government in Cheong Wa Dae, South Korea said it plans to invest 300 trillion won over the next 20 years, seeking to invest heavily in six technology areas, including chips, displays, rechargeable batteries, electric vehicles, robotics and biotechnology, to make Yongin City in Gyeonggi Province the world's largest "cutting-edge system semiconductor cluster". The giant cluster will have the entire semiconductor value chain, including semiconductor fabs, materials, components, equipment, and fabless (Fabless). The plan was announced by South Korean President Yoon Suk Yeol on Wednesday.

Most of the investment in the construction of the cluster will come from Samsung Electronics, which will invest about $230 billion in the national system semiconductor industrial park, which is 7.1 million square meters, larger than the three parks in Yongin, Hwaseong and Pyeongtaek combined. Samsung's new manufacturing will include five chip factories (Fab) and attract up to 150 material, parts and equipment manufacturers, fabless chip makers and semiconductor R&D facilities near Seoul, the Samsung Ministry of Industry said in a statement. South Korea hopes to foster 10 fabless companies with annual sales of more than 1 trillion won. In the Yongin cluster, Samsung Electronics' vision for the future is to take the world's No. 1 position in system semiconductors and foundries, and to widen the wide gap with other companies in the memory sector.

Last May, Samsung outlined a plan to invest more than $350 billion into its business and create tens of thousands of new jobs by 2026. The company said it would invest primarily in core businesses such as chip manufacturing and biopharmaceuticals. It is unclear whether the previously announced investments will overlap with those announced by the government on Wednesday.

In addition to private investment, the South Korean government will budget 25 trillion won or more over five years for research and development of strategic technologies such as artificial intelligence. About 360 billion won will be provided this year for developing chip packaging technology and about 100 billion won for water and electricity infrastructure for industrial parks.

In the current competitive environment, the challenges and dilemmas faced by the Korean semiconductor industry are also common to the global semiconductor industry. As TSMC founder Chang Chung-Mou recently said "In my opinion, there is no doubt that in the chip industry, globalization is dead." In this chip war, for each country, the important thing is the execution and speed.