"System semiconductor foundation begins with securing IP."

As the Yoon Seok-yeol administration announced plans to build a system semiconductor mega cluster, criticisms are pouring in that it fails to properly understand the system semiconductor ecosystem.

On the 21st, a National Assembly debate was held at the National Assembly Members' Hall in Yeouido to respond to the US semiconductor subsidy incentives. This forum, which discussed the impact of the U.S. subsidy review standards on the domestic semiconductor industry, was hosted by the office of Representative Kim Hong-gul, and was attended by Kim Yang-paeng, a research fellow at the Korea Institute for Industrial Economics and Trade; Wang Seong-ho, CEO of Nemesis; and Baek Seo-in, a professor at Hanyang University, who sought countermeasures.

■ The US writes "subsidy" but reads it as "restriction"
Kim Yang-paeng, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, “The United States is demanding that countries within the semiconductor ecosystem join in controlling China,” and that semiconductor incentives will be a means to achieve the goal of national security in this process. He made this remark while mentioning the recent announcement by the U.S. Department of Commerce that it would impose conditions on semiconductor subsidies, including the retrieval of subsidies paid for excess profits and restrictions on investment and cooperation with China for the next 10 years.

“Semiconductor subsidies are not intended to support struggling companies during a recession, nor are they intended to help companies become more profitable in the United States,” Commerce Secretary Gina Raimondo said in a speech at George Washington University in February. “Our investments are intended to achieve our national security objectives.”

Researcher Kim Yang-paeng said, “After meeting with Samsung Electronics and SK Hynix officials, SK Hynix has not yet started building a factory in the U.S., so it has no plans to apply for subsidies.” He added, “Only Samsung Electronics and TSMC are considering applying for subsidies, but there have been recent reports that TSMC may not apply for subsidies, so Samsung is trying to figure out related trends.”

The industry is reportedly deeply concerned that accepting subsidies and complying with the terms set by the U.S. Department of Commerce could expose a significant portion of its semiconductor development and production know-how, including materials, profit structures, and technology. Furthermore, if companies are forced to recoup 75% of the benefits they received, exceeding $150 million in excess profits, the subsidy benefits would effectively be nullified.

Despite these conditions, Dr. Kim predicted that the company would receive subsidies, even if only passively, as the original technologies, such as equipment and IP, were derived directly or indirectly from the United States. If US sanctions are imposed, it may be difficult for Korean companies' factories in China to even operate.

In his opening remarks, Rep. Kim Hong-gul expressed concern, saying, “The United States, with its free-market economy, is increasingly crossing the line, and if things continue this way, the domestic semiconductor industry could follow in the footsteps of the Japanese semiconductor industry that declined.” He also pointed out that the Yoon Seok-yeol administration announced a plan to build a semiconductor mega cluster, but it is too focused on building hardware and manufacturing plants, indicating a lack of preparation for the vulnerable fabless industry.

■ System semiconductors face a triple whammy of IP, talent, and ecosystem shortages.
The fabless industry voiced its support for the development of original IP, saying that system semiconductor design assets (IP) are the foundation of the fabless corporate ecosystem.

Nemesis CEO Wang Seong-ho, who operates a fabless company in the bio field, pointed out IP as a weakness of domestic fabless companies, saying, “It is not an ecosystem if you gather all the design houses and foundries that make up the fabless ecosystem in one place.”

CEO Wang, who believes that nurturing IP is a top priority, stated, “In order to become a robust fabless company, we need to foster the development of good IP, and to achieve this, government subsidies need to be focused on IP development.”

In political circles and discussion panels, the government is only allocating the budget to the construction of short-term national industrial complexes to achieve results within its term. He pointed out that this is nothing more than handing out budgets to local governments and is not of much help to the semiconductor industry, which is actually being fostered.

CEO Wang Seong-ho lamented that domestic fabless companies are small and therefore not sought after by large companies in the market. He cited a number of limitations for domestic fabless companies, including a lack of talent, a lack of star products, difficulties in global expansion, and limited economies of scale. He argued that attracting talent is crucial, particularly through aggressive M&A efforts to expand scale and brand power, as well as through increased startup exits.

Furthermore, the company proposed the concept of a "non-advanced process public interest system semiconductor foundry" to explore opportunities in the US market. This strategy involves establishing a 12-inch fabless foundry in the US through a private-government joint venture and using it as a bridgehead for expansion into the US market. Given that many domestic fabless companies possess potential in analog ICs and 16-32-bit customized MCU development, the company suggested the potential for fostering related fabless businesses.

Park Byeong-won, a senior research fellow at the Science and Technology Policy Institute, said, “If all fabs are built in the U.S. in five years, the Korean semiconductor industry will face a crisis. If there are even 10 or 100 companies with the potential to grow into companies like Arm, they will be able to survive based on that.”