Samil PwC: "Korea's semiconductor industry must shift to a profitability-focused business model to fend off China's advance"

Report on "The Reality of China's Semiconductor Rise" Published

As China's semiconductor industry develops rapidly, some have argued that South Korea's semiconductor industry should shift its business structure to focus on profitability.

Samil PwC announced on October 26 that it had published a report titled "The Reality of China's Semiconductor Rise: Challenges for Korea as China's Semiconductor Industry Advances." The report analyzed China's semiconductor industry from four perspectives: supply chain influence, technological competitiveness across the value chain, industrial and market demand, and future growth potential.

The report analyzed China's semiconductor industry competitiveness as the result of an industrial ecosystem built over the past 20 years by combining policy, capital, markets, regional clusters, and talent. Demand from smartphones, electric vehicles, and artificial intelligence (AI) has led to expanded production, while mass-production experience and process data accumulated during production have contributed to improvements in quality, yield, and costs, as well as reinvestment, creating a virtuous cycle of growth.

It also emphasized that China's vast demand market and production base serve as both initial customers and testing grounds for Chinese companies' products, underpinning a "China for China" strategy that links supply chains around domestic companies to meet domestic demand. However, it assessed that China has not yet reached the stage of controlling the entire semiconductor supply chain, as it has clearly defined areas where it is competitive and others where it lacks experience.

The report recommended that South Korea's semiconductor industry shift its business structure to focus on profitability. In commodity memory, companies should defend profitability by strengthening cost competitiveness and increasing the share of high-value-added products in preparation for expanded supply from China. It also stressed the need to increase early investment in high-bandwidth memory (HBM), AI memory, advanced packaging, and key intellectual property (IP). It added that demand-generating industries such as AI and robotics should also be fostered.

It also said that South Korea should actively pursue business opportunities in areas such as equipment and materials as part of its China strategy, while thoroughly protecting strategic technologies and capabilities, including leading-edge processes and key design assets.

"What China is developing is not individual semiconductor companies, but a market and industrial ecosystem in which semiconductors can be repeatedly adopted and improved," said Lee Juhyung, semiconductor sector leader and partner at PwC Consulting. "In the semiconductor competition ahead, countries with more customers, demand-generating industries, and AI infrastructure will have an advantage. South Korea, too, must move beyond being a technology powerhouse and become an ecosystem powerhouse that connects technology with markets and industries."

This content was produced with the assistance of AI translation services.