Concerns about the semiconductor industry are growing, with semiconductor exports in August recording their first negative growth in 26 months (-7.8%). Amidst this, a survey result suggests the crisis will not end anytime soon.

According to a survey of 30 domestic semiconductor experts conducted by the Korea Chamber of Commerce and Industry and announced on the 5th, seven out of ten (76.7%) experts assessed the current state of the semiconductor industry as a "crisis" (56.7% on the verge of a crisis, 20% in the midst of one). Only 20% responded that the industry was "on the verge of a crisis," while only 3.3% said it was "not in a crisis."

▲Domestic semiconductor industry business outlook survey (data: Korea Chamber of Commerce and Industry)

■"It won't be easy to improve conditions in the short term," 60% of experts say. The crisis will likely persist for the next year.

Experts predicted that the current difficult situation would not improve any time soon. When experts who diagnosed the current situation as a "crisis" or "on the verge of crisis" were asked how long they expected the situation to last, the majority (58.6%) predicted it would continue "beyond the year after next." Following that, 24.1% predicted "until next year," 13.9% predicted "until the first half of next year," and 3.4% predicted "until the end of this year."

▲Expected duration of crisis situation (Source: Korea Chamber of Commerce and Industry)

Experts cited the multitude of short-term and long-term external risks as the main cause.

Kim Yang-paeng, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, "The uncertainty in the semiconductor industry is increasing as risks such as △semiconductor oversupply △price decline due to decreased global demand and increased inventory △China's rapid technological pursuit △intensified competition for technological hegemony between the US and China are occurring simultaneously." He added, "Because short-term and long-term issues are complexly intertwined, the impact is likely to last for a considerable period of time."

In fact, the decline in memory semiconductor prices is also showing an unusual trend. Prices for DRAM and NAND flash have been declining for several months, and experts and market research firms are predicting that memory semiconductor prices will fall by more than 10% in the third quarter compared to the second quarter.

Many people said that the current situation of the semiconductor industry is the most serious in the past 10 years. Comparing the current situation to the slump in the domestic semiconductor industry over the past decade—during China's entry into the memory market in 2016 and the US-China trade war in 2019—43.4% of experts responded that the situation is "more serious than then (16.7% "very serious" and 26.7% "serious"). 36.6% said it is "similar," and 20% said it is "good."

2016 marked a break from four years of export growth, driven by China's entry into the memory semiconductor market and the aftermath of the THAAD deployment. In 2019, semiconductor exports fell by approximately 26% year-on-year, from $128.1 billion to $95.2 billion, due to the US-China trade dispute and the global semiconductor downcycle.

Professor Beom Jin-wook of Sogang University's Department of Electronic Engineering said, "If the past turmoil in the semiconductor industry was mainly due to a temporary deterioration in the external environment and the semiconductor cycle, this situation is characterized by the supply chain competition among major powers that has no end in sight, and concerns about China's technological pursuit that is developing at a rapid pace," and diagnosed that "the industry's sense of crisis and anxiety is greater than ever."

For example, last week, Apple selected China's YMTC as its new supplier of memory semiconductors, which caused a sense of crisis in the domestic semiconductor industry. It is known that the technology gap between Korea and China in the NAND flash sector that YMTC will supply to Apple is only 1-2 years.

■Chip4 Discussion and US Semiconductor Act: Concerns and Expectations Mixed... Chamber of Commerce: "Diplomatic Efforts and Groundbreaking Measures Are Essential"

Experts' assessments of the Chip 4 debate, which has emerged as a rapidly emerging external issue surrounding the domestic semiconductor industry, and the impact of U.S. semiconductor and scientific law were mixed.

First, regarding the impact of the Chip 4 discussion on the domestic semiconductor industry, 36.6% of respondents were "positive" (3.3% very positive, 33.3% somewhat positive), while 46.7% of experts responded "negative" (16.7% very negative, 30% somewhat negative), suggesting a need for more cautious approach to the discussion. Only 16.7% of respondents believed it would have "no significant impact."

Professor Park Jin-seop of Hanyang University's Department of Convergence Electronic Engineering said, "The semiconductor industry has a tremendous international division of labor, so participation in the Chip 4 dialogue is inevitable." He added, "While it offers opportunities for R&D and supply chain collaboration with global semiconductor companies, we cannot help but worry about the potential negative impacts of intensifying US-China competition and Chinese backlash." However, Professor Park predicted, "The technological gap with China in the semiconductor sector remains significant, and China's needs are significant, so the likelihood of an immediate impact on semiconductor exports is low."

Regarding the impact of the 'American Semiconductor and Science Act,' 50% had a 'positive' outlook (3.3% very positive, 46.7% somewhat positive), while 40% had a 'negative' outlook (20% very negative, 20% somewhat negative). Only 10% of respondents answered that there would be no significant impact.

Professor Jeong Eui-young of Yonsei University's Department of Electrical and Electronic Engineering said, "The semiconductor and science law has increased the possibility that the global semiconductor supply chain will be rapidly reorganized around the United States." He added, "While there are negative factors, such as Chinese investment being restricted due to guardrail provisions, we also expect that the effects that can be gained through cooperation with the United States, which has a technological advantage in semiconductor development and design, will be significant."

▲Chip 4 Discussion and Expected Impact of US Semiconductor Law (Source: Korea Chamber of Commerce and Industry)

Experts expressed the following concerns as short-term threats to the domestic semiconductor industry: △'decrease in global semiconductor demand (80% negative impact, 16.7% no impact, 3.3% positive impact)' △'China's COVID-19 lockdown (66.7% negative impact, 13.3% no impact, 20% positive impact)' △'global interest rate hike trend (63.3% negative impact, 26.7% no impact, 10% positive impact)' △'War in Ukraine (56.7% negative impact, 36.7% no impact, 6.6% positive impact)'.

The most urgent policy tasks for the development of the semiconductor industry were selected as follows: △Smooth diplomatic efforts by the government to respond to Chip 4 (43.3%), △Human resource development (30%), △Expansion of R&D support (13.3%), △Expansion of tax and financial support for investment (10%), and △Support for stabilizing the supply chain for semiconductor materials (3.4%).

Woo Tae-hee, executive vice president of the Korea Chamber of Commerce and Industry, said, "The total exports “It is fortunate that the government promised corporate investment and human resource development in semiconductors through the announcement of the ‘Strategy to Strengthen Export Competitiveness’ last week, given the decline in semiconductor exports, which account for one-fifth of Korea’s total exports,” he said. “However, this is a time when more fundamental efforts are needed to maintain the super gap in the semiconductor sector, such as special institutional improvements for investment in and acquisition of overseas technology companies and active and sophisticated diplomacy among semiconductor competitors.”