For years, South Korea was a dominant force in the semiconductor industry, particularly in memory chips, where giants like Samsung Electronics and SK Hynix set the global standard. However, a recent report by the Korea Institute of Science & Technology Evaluation and Planning (KISTEP) suggests that China has overtaken South Korea in key semiconductor technologies, marking a significant shift in the global chip race. This shift is not just a technological setback but a major business concern, with South Korea now at risk of losing billions in revenue and market share.
Who is Making the Claim?
The findings come from a survey of 39 South Korean semiconductor experts conducted by KISTEP in 2024. Their analysis indicates that China has surpassed South Korea in foundational semiconductor capabilities, even in areas where South Korea had traditionally led, such as memory chips. This report follows earlier assessments from 2022 that still placed South Korea ahead in several sectors, underscoring the rapid progress China has made in just two years.
“Even in the memory market, where Korea had maintained its unrivaled status, Chinese semiconductor companies are increasing their market share,” the report states. This means significant revenue losses for South Korea’s leading chipmakers, who have long depended on memory chip dominance to drive profits. If this trend continues, South Korean companies could lose contracts worth billions to Chinese competitors.
Where is South Korea Losing Business?
South Korea now trails China in several critical semiconductor fields, impacting its global competitiveness and bottom line:
- Memory Chips: Once a South Korean stronghold, China now ranks second globally in this technology, behind only the United States. With Chinese manufacturers producing high volumes of legacy chips, South Korean companies risk losing a significant share of a market valued at hundreds of billions of dollars annually.
- AI Semiconductors: China maintains an edge over South Korea, scoring 88.3% compared to South Korea’s 84.1%. This is especially concerning as AI-driven technologies become the core of future computing industries.
- Power Semiconductors: China leads with a score of 79.8%, while South Korea lags at 67.5%, jeopardizing South Korea’s position in the growing electric vehicle and energy-efficient electronics markets.
- High-Performance Sensing Technology: China holds an advantage with 83.9% against South Korea’s 81.3%, further proving its growing influence in high-value semiconductor applications.
- Advanced Chip Packaging: South Korea and China are now evenly matched, both scoring 74.2%, whereas South Korea previously led in this area.
Why is This Costing South Korea So Much?
Several factors contribute to South Korea’s slipping position in the semiconductor race, each carrying significant financial implications:
- China’s Aggressive Investment: Since 2014, China has designated semiconductors as a national strategic industry, pouring billions into R&D and production to reduce reliance on foreign suppliers. “China has pursued aggressive policies and large-scale investments to achieve semiconductor self-sufficiency,” said Jeong Eui-jin, a research fellow at KISTEP. These investments are paying off, leading to direct revenue losses for South Korean firms.
- Market Expansion Strategy: Chinese companies are flooding the market with high volumes of legacy chips, where the technological gap with competitors is smaller, making it harder for South Korean firms to compete on price. The report highlights that China’s dominance in legacy chips is already cutting into South Korea’s profits.
- U.S. Sanctions Backfiring: Despite U.S. restrictions on China’s access to advanced semiconductor technology, China has innovated its way forward, developing alternatives and securing new supply chains. This has further undermined South Korea’s competitive advantage.
- South Korea’s Insufficient R&D Investment: Compared to competitors, South Korea’s public and private investment in semiconductor research and development has been relatively low. The report suggests that South Korea’s reliance on memory chips alone has made it vulnerable to shifting market dynamics. Without diversification, South Korean firms could see declining revenues in high-growth sectors like AI and automotive chips.
- Talent Drain: Experts warn that South Korea is losing key semiconductor professionals to better-paying opportunities abroad, weakening its ability to sustain innovation. “Issues such as the exodus of core talent, AI semiconductor technology, U.S.-China competition, South Korea’s domestic-focused policies, and rapid shifts in the supply chain will continue to impact South Korea’s semiconductor industry,” the report states. The loss of skilled workers could cost South Korea not only in terms of innovation but also in the ability to execute large-scale semiconductor projects efficiently.
The findings have sparked concerns among South Korean industry leaders and corporate executives. Samsung Semiconductor chief Park Yong-in recently urged employees in the System LSI division to push harder in developing flagship products to maintain their global standing. “We must take collective responsibility in developing flagship products to maintain an edge in the market,” he emphasized, signaling that the company recognizes the financial threat posed by China’s rise.
To counter China’s rapid progress and mitigate financial losses, experts suggest that South Korea must:
- Significantly increase government and private-sector R&D investments. Without aggressive funding, South Korea’s semiconductor firms risk falling further behind, losing out on lucrative contracts and market opportunities.
- Strengthen policies to retain and attract semiconductor talent. The loss of skilled workers is not just a technological problem but a business problem, affecting long-term competitiveness.
- Diversify its semiconductor industry beyond memory chips. AI semiconductors, power chips, and next-generation sensors represent multi-billion-dollar markets that South Korea must penetrate.
- Forge stronger partnerships with global tech leaders. Securing cutting-edge chipmaking technology and collaborating with foreign firms can help South Korean companies stay competitive.
The semiconductor industry is evolving rapidly, and South Korea faces not just technological challenges but severe financial risks if it fails to adapt. “Given the second Trump administration, the rise of Japan and China, and South Korea’s inadequate domestic R&D investments, the outlook for South Korea’s semiconductor market is not promising,” warned KISTEP’s Jeong Eui-jin. If swift action is not taken, South Korean firms could see a dramatic decline in global market share, leading to substantial business losses. The next few years will determine whether South Korea can reclaim its semiconductor dominance or whether China will continue to erode its once-unquestioned leadership.
NP Editor: Couple of comments, China stole most of the technology from others including the U.S., Europe and yes, South Korea.
Does South Korea have the resources to catch up again. I’m thinking maybe not.
