"Semiconductors: This Cycle Is Different... HBM Export Expansion to Continue, Bank of Korea Analysis"

This Expansion Phase Resembles the IT Revolution and Popularization Period So Far
AI Foundation Expands from Big Tech to Businesses and Nations
US-China Competition for AI Leadership and Korea's Competitiveness Are Key Variables

"This semiconductor expansion phase is expected to last for a considerable period, driven by demand for artificial intelligence (AI) infrastructure and devices."

On July 10, the Bank of Korea, in its July economic assessment box titled "Semiconductor Export Business Cycle: Will This Time Be Different?", diagnosed that the current semiconductor expansion phase resembles the pattern seen during the IT revolution and popularization in the early 2000s.

Recently, semiconductors have continued their expansion phase, supporting Korea's exports. In the second quarter, semiconductor exports showed a strong increase due to robust AI investment demand, which exceeded expectations, as well as significant pre-emptive demand ahead of U.S. tariff impositions and the discontinuation of Double Data Rate 4 (DDR4) products. In the second quarter, exports (based on customs clearance) increased by 2.1% year-on-year, marking a turnaround, with semiconductor exports rising by 15.9% and leading the overall trend. However, some are concerned that, based on the average cycle of previous semiconductor business cycles, a contraction phase may soon follow.

Since 2000, the global semiconductor market and Korea's semiconductor exports have gone through a total of six cycles. Excluding the current phase, the previous five cycles generally showed expansion and contraction periods of three to four years. There are also differences by period: expansion phases triggered by corporate investment demand for IT infrastructure lasted longer and saw greater increases than those driven by consumer device demand. During the IT revolution and popularization in the early 2000s, the expansion phase was further prolonged as demand was created not only for infrastructure such as broadband internet networks but also for IT devices like mobile phones and laptops.

The report stated, "A comparative analysis of past and present semiconductor export expansion phases suggests that this expansion will continue for a considerable period," adding, "As the foundation of AI expands from big tech companies to general businesses, and from businesses to nations, investment in AI infrastructure is expected to maintain a high growth rate for the time being."

While it remains uncertain which consumer AI device will ultimately become the main product, the continued emergence of new AI devices such as robots and autonomous vehicles is expected to drive ongoing demand for semiconductors. The report observed, "This semiconductor export expansion is likely to continue for a considerable period, centered on high bandwidth memory (HBM)," and predicted, "Demand for semiconductors will also gradually expand to a wider variety of products, including on-device AI, as technology advances."

There are also downside risks. The report pointed out, "Currently, semiconductor exports have been boosted by pre-emptive demand ahead of tariff impositions, which means that future demand has been brought forward. Therefore, if tariffs are imposed in the future, the opposite effect could occur." In particular, exports of general-purpose products such as DDR4, which were the focus of pre-emptive demand, could slow down. Intensifying competition with U.S. and Chinese companies such as Micron and CXMT is also a risk factor. The report noted, "If Korea loses out in this competition, the benefits of the AI revolution in memory semiconductors could go to companies or countries other than Korea," adding, "In fact, during the IT revolution and popularization period, companies from other countries that once held high market shares were eventually eliminated."

Ultimately, the outcome will depend on how the competition for AI leadership between the United States and China unfolds, and whether Korea's semiconductor industry can maintain its competitiveness. Fundamentally, the United States is using tools such as export controls and tariffs to keep China in check and maintain its technological superiority, while China is seeking to catch up with the United States through technological self-reliance. The report emphasized, "The key will be how agilely Korean companies can respond to these rapid changes in external conditions."

The report also analyzed that active support at the national level should be considered. It cited power supply as an example, noting that, given the high electricity demand of the semiconductor industry, it is necessary to establish an environment where power can be supplied stably. The report stated, "A surge in power demand is expected due to AI development," and added, "The newly established Yongin cluster must secure a stable power source."

Securing excellent semiconductor and AI talent is also crucial. The report stated, "It is important to expand talent development through measures such as expanding university curricula and promoting interdisciplinary research, while also supporting research environments such as securing GPU clusters and implementing policies to prevent talent outflow."