[Chip Talk] Legacy Semiconductors Poised for an Upturn in the Physical AI Era... Korea Faces Entry Headwinds

Legacy semiconductor demand to recover on the back of physical AI and power infrastructure expansion
Global IDMs accelerate capacity expansion as China, the U.S., and Europe race for dominance
Korea, concentrated in memory and leading-edge processes, faces structural limits in processes and talent

Legacy semiconductors, once classified as "old-generation processes," are back in the spotlight with the advent of the "physical AI" era. Some observers predict that if new demand fully materializes on top of traditional demand from automobiles, defense, space, and aviation, legacy semiconductors could re-enter a growth phase. While global companies in the United States, China, and Europe are rushing to respond to this shift, there is also criticism that Korea, whose semiconductor industry is heavily concentrated in memory and cutting-edge processes, has weak design and mass-production capabilities in the legacy semiconductor domain.

According to industry sources on the 7th, legacy semiconductors used in low Earth orbit satellites, military and industrial robots, and automotive and power semiconductors are once again moving to the forefront of the industry. Legacy semiconductors, produced using processes of 28 nm (1 nm = one-billionth of a meter) and above, lag behind leading-edge semiconductors manufactured with ultra-fine processes of 7 nm and below in terms of process miniaturization, but are characterized by high stability and yield.

Semiconductors for vehicles, robots, space, and defense must operate reliably even in environments of extreme cold, high heat, and radiation. For this reason, they have been used in areas where durability and reliability are more important than process miniaturization. In particular, during the COVID-19 pandemic, supply disruptions of legacy process-based components such as automotive MCUs and power semiconductors dealt a blow to the global automobile industry, bringing renewed attention to the importance of legacy semiconductors and other general-purpose components.

Legacy semiconductors in the spotlight as "physical AI" rises

These characteristics have become even more prominent with the recent rise of physical AI. While leading-edge semiconductors are used for artificial intelligence (AI) computation itself, most of the actuators, servomotors, power conversion, and control systems in robots rely on legacy semiconductors. With the U.S. manufacturing revival policy and large-scale tax credits coinciding with investments in low Earth orbit satellite communications, robots and physical AI, and power infrastructure, some forecasts suggest that legacy semiconductors are highly likely to enter another upcycle after 2026. In particular, in data centers and power infrastructure, the importance of legacy-based power semiconductors, which determine power efficiency, is growing.

Another defining feature of the legacy semiconductor industry is its high entry barrier. Although unit product prices are low, at the level of several hundred to several thousand won, once a product is developed it is typically supplied over the long term for 10 to 15 years. Without massive upfront capital investment and long-term customer commitments, new entry is virtually impossible. As a result, the global market is dominated by integrated device manufacturers (IDMs) with annual sales exceeding 10 trillion won, such as Texas Instruments, STMicroelectronics, NXP, and Analog Devices.

These companies have recently been expanding their production capacity. Texas Instruments, a U.S. IDM, is carrying out approximately 60 billion dollars in facility investments over six years, converting its production lines from 200 mm wafer-based to 300 mm. Once the process is shifted to 300 mm, chip output is expected to increase by about 2.5 times, fundamentally changing unit costs and the overall cost structure.

STMicroelectronics, Europe's largest semiconductor company, which has supplied chips for SpaceX's Starlink satellites and user terminals for 10 years, has also drawn attention recently. The company has delivered more than 5 billion radio-frequency (RF) antenna chips to the Starlink satellite network over the past decade, and there is now speculation that it could supply an additional similar volume by 2027.

Meanwhile, Chinese companies are increasing their market share through aggressive low-price strategies. As China’s semiconductor rise has been disrupted by U.S. sanctions, the country has chosen the legacy semiconductor segment as an alternative path. With the government continuing to pour in massive investments, China has also expanded its presence in the global semiconductor market. In legacy semiconductors of 28 nm and above, China’s share of global production capacity is forecast to expand to 32% by 2028.

Need is growing, but Korea lacks both processes and talent

As a recovery in legacy semiconductor demand is anticipated across global industries, voices are emerging in Korea calling for the creation of an ecosystem centered on power semiconductors. The government also plans to develop the Busan, Ulsan, and South Gyeongsang regions into a "power semiconductor specialized complex" and, starting this year, to fully launch research and development and ecosystem-building efforts.

However, within the industry there is a pessimistic view that, in reality, fostering such an industry domestically is itself difficult. High-voltage power semiconductor processes require massive initial investment and guaranteed long-term demand, yet the companies and ecosystem in Korea capable of bearing these burdens are limited. By its very nature, the industry’s structure makes it difficult for latecomers to enter the market and drive out incumbents through price competition. On top of this, Korea’s semiconductor talent training system is built around memory and leading-edge processes, and critics point out that there is simply an insufficient pool of researchers and engineers who can be absorbed into non-memory and legacy process fields.

Kyung Heekwon, a research fellow at the Korea Institute for Industrial Economics and Trade, said, "As the global data center power architecture shifts to a high-voltage direct-current basis, power semiconductor processes have already advanced to around the 18 nm level, but it is difficult to find the capability to mass-produce gallium nitride (GaN) wafers in Korea," adding, "Because power semiconductors have low unit prices relative to the initial investment and long product lifecycles, it is not easy for latecomers to enter the market, and that makes Korea’s structural limitations all the more evident when it comes to securing competitiveness by expanding into legacy semiconductors."