How Will the Semiconductor Industry Landscape Change with IPEF Participation? [New Economic Security Map]

② Korea, vulnerable in materials, parts, equipment and post-processing, finds a complementary opportunity in the IPEF semiconductor alliance

[Asia Economy Reporters Sunmi Park and Jinho Kim] Apple, Best Buy, Deutsche Telekom, Qualcomm, Supreme Electronics. These are the top five clients listed in Samsung Electronics' Q1 business report. These five companies account for 14% of Samsung Electronics' total sales. A noteworthy point is that fabless semiconductor company Qualcomm has been included in the top five clients for the first time. Qualcomm entrusted Samsung Electronics with the production of its mobile application processor (AP) ‘Snapdragon 8 Gen 1,’ released earlier this year, elevating Samsung to a major sales partner. The fact that Qualcomm CEO Cristiano Amon accompanied U.S. President Joe Biden during his visit to Korea suggests that tangible results of the Korea-U.S. semiconductor alliance may soon emerge.

As U.S. President Joe Biden visited Korea and Japan consecutively to launch the Indo-Pacific Economic Framework (IPEF) and emphasized the semiconductor alliance, it is providing an opportunity to address Korea’s weaknesses in semiconductor design, materials, parts, equipment (MPE), and post-processing (testing, packaging), despite its strength in semiconductor manufacturing.

On the 24th, the semiconductor industry agreed that Korea’s strength lies in manufacturing, the U.S. in manufacturing and design, and Japan in materials, parts, and equipment. Strengthening cooperation through the semiconductor alliance among IPEF member countries will offer opportunities to compensate for weaknesses through mergers and acquisitions (M&A) and investments. Previously, excelling in just one area was enough to become a key player in the semiconductor market, but as inter-country cooperation to address semiconductor weaknesses intensifies, countries capable of self-reliance across the entire semiconductor process will ultimately gain the upper hand.

◆ Semiconductor Alliance Blurs Boundaries of National Strengths and Weaknesses = Currently, the semiconductor market is dominated by four countries?U.S., Korea, Taiwan, and Japan?accounting for over 80%. However, each country has distinct strengths and weaknesses, making smooth semiconductor supply difficult without inter-country cooperation. The U.S. holds balanced strengths in system semiconductor chip design and memory production, securing the world’s top semiconductor sales position, but is weak in foundry (semiconductor contract manufacturing), materials, parts, and post-processing.

Korea, known as a ‘semiconductor powerhouse’ due to its strength in memory production, lacks large corporations active globally in semiconductor design and is considered weak in materials, parts, equipment, and post-processing. Japan has clear strengths in materials, parts, and equipment but has weak memory semiconductor production capabilities such as DRAM.

With the strengthening of the semiconductor alliance among IPEF member countries, initially, Korea, the U.S., and Japan can enhance trust and cooperation among customer companies in their respective strong semiconductor fields, creating an atmosphere to further develop these strengths. For Korea, cooperation between Samsung Electronics, responsible for semiconductor manufacturing, and Qualcomm, which designs chips, will be reinforced. This U.S. investment will accelerate the ‘System Semiconductor 2030 Vision,’ aiming to reach the world’s top not only in memory semiconductors but also in system semiconductors including foundry by 2030.

At the same time, the semiconductor alliance among IPEF member countries opens a path to compensate for weaknesses. Korea and the U.S., which suffered from Japan’s semiconductor material export restrictions imposed in 2019, can now form a stronger materials, parts, and equipment alliance with Japan under the IPEF framework.

Ki-hyun Ahn, Executive Director of the Korea Semiconductor Industry Association, said, “For Korea, the semiconductor technology alliance can bring good opportunities in manufacturing technology development, research and development (R&D) capabilities, and investment.” He added, “Japan is also expected to further develop its strong materials industry through this technology alliance.” Professor Jae-geun Park of Hanyang University (Chairman of the Korea Semiconductor Display Technology Society) said, “From Korea’s perspective, this technology alliance might lead to the lifting of Japan’s export restrictions.”

◆ China’s ‘Rise’ May Lead to Isolation in the Semiconductor Market = These alliance efforts can also effectively check China, which is attempting semiconductor advancement by leveraging its position as the world’s largest electrical and electronic product market.

China, backed by government policies and funding, is gradually making strides in NAND production and foundry sectors but still has many deficiencies across the semiconductor process, limiting growth through self-reliance without cooperation. The semiconductor alliance among IPEF member countries can completely isolate China, which needs cooperation with Korea, the U.S., and Japan, the dominant players in the semiconductor market.

However, unlike the originally planned ‘CHIP4 (Korea-U.S.-Japan-Taiwan Semiconductor) alliance,’ the semiconductor alliance among IPEF member countries excludes Taiwan, which is strong in foundry, reducing the likelihood of overt Chinese retaliation.

Sung-chul Kang, Senior Research Fellow at the Korea Semiconductor Display Technology Society, said, “Concerns about China may be exaggerated. Since Korea has semiconductor factories in China, this supply chain strengthening could lead both countries to seek mutual benefits. If sanctions are imposed, equipment cannot be supplied to Korean factories in China, but through the alliance, these issues might be resolved.”