[INTERVIEW] 'Greater public-private support needed to foster talent in chip industry'

Chip expert says now is the time to invest in foundry biz

By Kim Bo-eun

Korea University professor of semiconductor engineering Yu Hyun-yong / Courtesy of Yu

Two Korean chipmakers account for the lion's share of the global memory semiconductor market with an over 70 percent stake. Samsung Electronics, the top memory chip maker, is also the second-largest player in the global market for chip contract manufacturing

Decades ago, Korea was merely a fast follower ― it relied on foreign equipment from the U.S., Europe and Japan to make chips, but Samsung and SK hynix have since managed to take the lead in the memory chip market.

"This basically means Korea has built its competitiveness with its workforce," Yu Hyun-yong, a Korea University professor of semiconductor engineering, told The Korea Times.

But securing a skilled workforce has become increasingly difficult, as the brightest of the younger generation have had a tendency to opt for occupations such as surgeons rather than engineers.

Talent is also lost to competitors in China which aggressively scouts workers in key positions by offering significantly greater compensation.

The shrinking workforce due to the country's aging society poses an additional challenge. The government continues to try to prevent local workers from leaving and leaking crucial data to competitors, by strengthening regulations, but this has had little effect.

"What we need, in addition to regulations, is for the government to run programs to find talented individuals and enable them to work at key companies," Yu, who was formerly with Intel, said.

Chipmakers are also investing to secure talent, by setting up semiconductor departments at prestigious universities and offering full scholarships and employment opportunities. Samsung initiated such a program at Sungkyunkwan University in 2006. Samsung and SK hynix set up additional programs at Yonsei and Korea universities this year.

"The new departments have been set up on a temporary basis. The government should ensure it provides support from a long-term perspective. Talent is essentially the most important factor behind competitiveness," the professor said.

Demand is soaring for foundry services

Taiwan's semiconductor contract manufacturer TSMC is a formidable player in the market. Some say chip powerhouse Samsung Electronics cannot compete with the No. 1 foundry company, given the former operates a diverse array of businesses spanning semiconductor design and manufacturing to smartphone and consumer electronics, while TSMC focuses solely on chip contract manufacturing.

Yet TSMC's dominant market presence is no reason to keep Korean chip makers from investing further in the foundry business, Yu said.

Samsung and SK hynix are already top players in the memory chip market. But memory chips only account for 30 percent to 40 percent of the market for semiconductors.

"The size of the foundry market is much larger, and the demand for contract manufactured chips will continue to grow," the professor said.

The growth in demand for contract manufactured chips is due to a lack of players, which is attributed to major U.S. firms exiting the foundry business decades earlier. Those companies chose to focus on chip design as they realized this was more profitable and efficient than doing both design and manufacturing. This resulted in chip manufacturing capabilities in the U.S. to fall.

Demand for information processing non-memory chips is set to grow amid the development of artificial intelligence and other cutting-edge technology. TSMC said in March it will invest $100 billion over the next three years to meet the surge in demand, after Intel announced it would spend $20 billion to expanding its foundry capacity.

"In such circumstances, Samsung will be able to benefit from increasing the portion of its foundry business," Yu said.

Samsung announced in 2019 that it would invest 133 trillion won to expand its foundry and non-memory chip business by 2030. In May, the tech giant stated it would increase its total investment to 171 trillion won. Memory chips currently account for 70 percent of Samsung's chip business revenue.

Greater foundry capacity of other players is also something fabless companies designing chips want, as they seek lower prices, the professor said.

"Recent reports say TSMC is hiking chip prices by up to 20 percent. This is possible because it controls more than half of the global foundry market."

TSMC dominated the global foundry market in the second quarter with a 53 percent share, followed by Samsung with 17.4 percent. Globalfoundries, UMC and SMIC followed, each taking up a lower portion of the market.

Korea's second-largest chipmaker, SK hynix, also recently unveiled plans to scale up its foundry business. Vice Chairman Park Jung-ho stated in May the company was reviewing ways to double its foundry production capacity, including expanding local facilities as well as acquiring foreign manufacturers. Currently, SK hynix's foundry business accounts for only 2 percent of total sales.

The SK affiliate, however, has yet to establish a greater presence in the memory chip market. Still, Yu said now is the time for SK to make foundry investments.

"Extended periods of investment are needed to attain technological competitiveness, so now is the time," the professor said. "A successful M&A will be essential for SK hynix, given late entrants need to secure not only production facilities but crucial technology via patents held by experienced entities in the market."

Yu also noted this is not only about capturing opportunities in the market, but "a matter of competitiveness at a national level." Chip manufacturing capabilities have become vital for major economies as they seek to secure a stable supply, after experiencing chip supply disruptions that affected worldwide automobile and smartphone production.

Such capabilities have become so crucial that this is now a matter discussed at the White House. The Korean government unveiled plans in May to build the world's largest chip supply chain, south of Seoul, as a means to secure local supply.

Intel's plans to re-enter the foundry business is also part of efforts by the U.S. to expand local chip production capacity, as much as a strategic business decision on the part of Intel. The company in recent years was in crisis mode, given it previously basked in "the world's first" titles but ended up lagging behind players such as TSMC and Samsung in developing new technology.

"Years ago, Intel made mobile chips, but at the time it was enjoying sales of central processing units which were much more profitable," Yu said. "But now, Intel is in a better situation to pursue the foundry business not only due to market circumstances, but also an internal sense of crisis."