[Kim Pyeonghwa's Peace and Chips] There Are Many Opportunities in Semiconductor Equipment... But Only the US, Japan, and the Netherlands Are Benefiting

Global Semiconductor Equipment Market Grew 44.2% Last Year
US, Japan, and Netherlands Equipment Companies Account for 80% of Market
High Technical Barriers and Significant R&D Costs

Editor's NoteSemiconductors. We hear about them every day, but when it comes to explaining the concept, it's hard to find the words. Called the rice of modern industry, it's something you can't afford not to know about, yet articles and books dealing with semiconductors are often so difficult that people avoid them. But did you know that semiconductors are actually quite fascinating? Even a single semiconductor component hides the mechanisms of the entire industry and the interests of nations. Peace and Chips will spoon-feed you the hidden contexts and meanings of this somewhat uncomfortable semiconductor field. Just place your spoon and enjoy.

[Asia Economy Reporter Kim Pyeonghwa] There is a market that recorded a rapid growth of 44.2% compared to the previous year, boasting a size of $102.5 billion (approximately 145.4 trillion KRW) last year alone. It is a highly anticipated market with an average annual growth rate of 19.3% expected until 2023, and that is the semiconductor equipment market. The global semiconductor equipment market is projected to exceed $120 billion (approximately 170.3 trillion KRW) next year. Naturally, there is curiosity about whether this is a market where we can secure our share.

The global semiconductor equipment market is characterized by an oligopoly. As of last year, the top five semiconductor equipment companies accounted for 79.5% of the entire market. In order, they are ▲Applied Materials (USA) with 22.5%, ▲ASML (Netherlands) with 21.4%, ▲Lam Research (USA) with 14.2%, ▲Tokyo Electron (Japan) with 12.4%, and ▲KLA (USA) with 9.0%. Equipment supply from just three countries?the United States, Japan, and the Netherlands?accounts for nearly 80% of the market. Even when expanded to the top 10 equipment companies worldwide, only these three countries are mentioned, indicating a highly concentrated market.

As the market size grows but the number of suppliers remains small, the profits per company inevitably become large. Last year, the combined global sales of the top five equipment companies reached $81.6 billion (approximately 116 trillion KRW), with most of the revenue generated in East Asia, including South Korea and Taiwan. Since the semiconductor market is expected to grow and equipment demand will increase accordingly, many anticipate further profit growth. Moreover, the recently established semiconductor factories are mainly based on advanced processes with high technical difficulty, so additional demand can also be expected. In many ways, it can be described as a 'flower path.'

Naturally, one might wonder, "Shouldn't South Korea jump into this market as well?" However, like other oligopolistic markets, the semiconductor equipment market has very high barriers to entry. Since semiconductors themselves require ultra-fine processes and are a highly sophisticated technology industry, the equipment used in manufacturing also demands considerable technical difficulty. Samsung Electronics made headlines this year by proactively starting mass production of 3-nanometer (nm; 1 nm = one billionth of a meter) foundry (semiconductor contract manufacturing) technology. The 3 nm process narrows the spacing (line width) between semiconductor circuits to about 3 ten-thousandths the thickness of an adult human hair, which gives an idea of how challenging it is to manufacture equipment used in this process. ASML, the only company in the world providing extreme ultraviolet (EUV) lithography equipment and receiving love calls from many semiconductor companies, reportedly spent nearly 30 years developing its equipment.

In this context, it is said that only companies with the capacity to bear enormous research and development (R&D) costs have survived in the current semiconductor equipment market. In the past, there were many players in the semiconductor equipment market, but as technology advanced, the capital required for business, including R&D costs, increased, and relatively smaller companies were reorganized through mergers and acquisitions (M&A). A representative example is Lam Research's acquisition of Novellus in 2012. Professor Eom Jae-cheol of the Semiconductor Electronics Department at Youngjin College explained, "Major semiconductor equipment companies typically invest 10-15% of their annual sales, excluding labor costs, purely in R&D. If a company earns 20 trillion KRW, it means investing 2 to 3 trillion KRW, which is an enormous scale."

Last year, South Korea's semiconductor equipment exports amounted to $7.9 billion (approximately 11.2 trillion KRW), which is only about 34% of the $23.06 billion (approximately 32.7 trillion KRW) revenue recorded by Applied Materials, the world's number one semiconductor equipment company. Although recent achievements have been reported in the domestic semiconductor equipment industry, the size gap remains significant. The Korean government has expressed its intention to increase the localization rate of equipment in this semiconductor supply chain ecosystem, but from a long-term perspective, more proactive strategies and support measures seem necessary.