Diversification of demand sources for system semiconductors due to acceleration of digitalization
Unlike memory, the fabless-foundry division of labor is solid.
Develop demand-oriented optimized system semiconductors


Despite the global economic downturn, the semiconductor industry has continued to grow. This is because digitalization has inevitably accelerated due to the increase in non-face-to-face demand caused by the COVID-19 pandemic.

This year, the global semiconductor market growth rate is expected to reach 8.7% (average of three organizations: Gartner, Omdia, and WSTS). The memory semiconductor market growth rate is estimated to exceed this by 15.5%.

Domestic companies Samsung Electronics and SK Hynix are among the top three memory semiconductor companies and ranked 2nd and 3rd, respectively, in the 2020 global semiconductor company sales rankings (excluding foundries).

According to the Ministry of Trade, Industry and Energy, memory semiconductors were exported worth approximately 63.9 billion dollars (71 trillion won) in 2020, ranking first in South Korea's export proportion and continuing the large gap with other countries.

What is noteworthy is the leap forward of the domestic system semiconductor industry. System semiconductor exports increased by 18% in 2020 compared to 2019, reaching approximately $30.3 billion (KRW 34 trillion), surpassing textiles and steel.

System semiconductors are now one of South Korea's top five export items (memory semiconductors, general machinery, automobiles, petrochemicals, and system semiconductors). This position is expected to be maintained due to the continued growth of the global semiconductor market.

◇ System semiconductors that calculate and control data

Semiconductors are broadly classified into 'discrete devices', 'integrated circuits (ICs)', and 'optical semiconductors'. Discrete devices are semiconductors with a single function, such as diodes and transistors. ICs are semiconductors that integrate tens to hundreds of millions of individual devices into a single chip.

ICs are divided into 'memory semiconductors' and 'system semiconductors'. Memory semiconductors store data, and system semiconductors calculate and control. System semiconductors are not an official term, but they began to be used by the public when the Ministry of Trade, Industry and Energy announced the 'System Semiconductor Vision and Strategy' in May 2019.

System semiconductors are divided into 'microcomponents' that control the whole, 'logic ICs' that control parts, and 'analog ICs' that convert analog signals to digital. Depending on their versatility, they are classified into general-purpose semiconductors, 'Application Specific IC (ASIC)', and 'Application Specific Standard Product (ASSP)'.

General purpose semiconductors such as DSP (Digital Signal Processor), MCU (Micro Controller Unit), and MPU (Micro Processor Unit) are used in various products. ASIC is designed for specific application fields or special functions of products, and ASSP is a form of ASIC that is standardized and supplied to multiple companies.

◇ System semiconductor market growing due to diversification of demand sources

Demand for memory semiconductors is concentrated in PCs, servers, and mobile devices, but system semiconductors are also in major demand in home appliances and vehicles. As digitalization is blowing across almost all industries to increase productivity and economic efficiency, demand for system semiconductors is becoming more diverse, and the market is also expanding.

According to a December 2020 WSTS survey, the semiconductor items with the largest share of the overall semiconductor market are logic ICs (26%) and memory semiconductors (26%), followed by microcomponents (16%) and analog ICs (13%). The remainder were individual components (6%), optical semiconductors (10%), and sensors (3%).

The logic IC market, represented by AP and DDI (Display Driver IC), is expected to grow at an average annual rate of 9.1% from USD 106.5 billion in 2019 to USD 175 billion in 2025.

The microcomponent market, including CPUs, is expected to grow at a CAGR of 4.4% from USD 66.4 billion in 2019 to USD 83.9 billion in 2025, and the analog IC market, including PMIC (Power Management IC), is expected to grow at a CAGR of 8.2% from USD 53.9 billion in 2019 to USD 79.9 billion in 2025.

◇ Map of memory semiconductor and other system semiconductor companies

The memory semiconductor industry is structured around integrated device manufacturers (IDMs) that are responsible for everything from design to production, with a structure of mass production of a small variety of products. The system semiconductor industry is structured around design-specialized companies (fabless), optimization-specialized companies (design houses), and production-specialized companies (foundries) with a structure of small-quantity, custom-made production.

This is because the purposes of the two semiconductors are different. The key to memory semiconductors is miniaturization. In order to increase data storage capacity and speed, as many components as possible must be integrated into a limited space. In addition, mass production of small varieties is common, so economies of scale must be implemented to secure price competitiveness. Microprocessing technology and capital are essential conditions for survival in the memory semiconductor market, and only IDMs have these.

The key to system semiconductors is optimization. Consumer trends are changing rapidly in various industries. Companies need hardware that fits their business. In order to improve data operation and control performance for specific purposes, it is necessary to design a chip structure that is appropriate for the situation. Excellent design personnel and technical skills are required to quickly provide chips that various users want.

In November 2020, IC Insights ranked the top 15 semiconductor companies by sales. Starting with Intel, they were Samsung Electronics, TSMC, SK Hynix, Micron, Qualcomm, Broadcom, Nvidia, Texas Instruments, Infineon, MediaTek, Kioxia, Apple, STMicroelectronics, and AMD.

Here, companies that focus on memory semiconductors are Samsung Electronics, SK Hynix, Micron, and Kioxia, while the rest of the companies focus on system semiconductors. Apple, which only designs chips that go into its own products, also made the list.

Using the same chips as competitors makes it difficult to differentiate user experiences, and new product launches can be delayed depending on chip vendors' schedules, so more and more companies, like Apple, are designing their own products. Google, MS, AWS, etc. are designing chips for cloud services, and in Korea, SK Telecom is developing AI accelerators for data centers in collaboration with Xilinx and AI chips for servers in collaboration with ETRI.

◇ Domestic system semiconductor industry development tasks

Memory semiconductors are subject to high price volatility and the possibility of oversupply due to periodic large-scale facility investments centered on IDMs and mismatches between supply and demand. System semiconductors are less likely to experience this than memory semiconductors due to the activation of on-demand production and division of labor in design and production.

In April 2019, the government announced the 'System Semiconductor Vision' to reorganize the domestic semiconductor industry, which is heavily focused on memory semiconductors. The government declared that it would increase the fabless market share from 1.6% in 2018 to 3.0% in 2022 and 10% in 2030, and increase the foundry market share from 16% in 2018 to 20% in 2022 and 35% in 2030. To achieve this, the participation of not only large corporations but also small and medium-sized enterprises is important.

The foundry sector, which requires extremely expensive equipment, is the domain of large corporations. Fabless is an area where small and medium-sized companies can participate. However, small and medium-sized enterprises with limited capital feel a high barrier to entry due to the need for technological infrastructure such as expensive electronic design automation (EDA) tools and securing semiconductor design assets (Intellectual Property (IP).

In order to lower the entry barriers for small and medium-sized enterprises into the fabless business, the Ministry of Science and ICT is conducting the EDA tool support project (19.10), the 12-inch semiconductor material, component, and equipment test bed construction project (20.08), and the Ministry of SMEs and Startups is conducting the Arm IP free provision project (20.04). Starting this year, semiconductor-specialized contract departments will be newly established and operated at major domestic universities.

What matters is demand. The system semiconductor industry moves around demand. The government selected five key areas including automobiles, bio, energy, IoT home appliances, and machinery and robots, and announced that it would create a public demand market worth more than 240 billion won by 2030 by establishing the 'Fusion Alliance 2.0' (19.04), a cooperation platform between fabless and demand companies. However, it has been criticized as being ineffective.

Accordingly, in September 2020, the Convergence Alliance 2.0 was expanded and reorganized into the 'Next-Generation Intelligent Semiconductor Business Unit'. The business unit consists of 103 companies, including demand companies (Hyundai Mobis, Samchully, SK Telecom, Hanwha Techwin), sponsor companies (Samsung Electronics, SK Hynix, DB HiTek), and development companies (Telechips, Skychips, Furiosa AI, Nextchip), 32 universities, and 21 research institutes.

The success or failure of the system semiconductor industry depends on the industrial base, expansion of participating companies, and market formation, and this requires continuous support and management.