hankyoreh

Chin Dae-je, the South Korean entrepreneur once known as “Mr. Semiconductor,” speaks during an interview with the Hankyoreh on Friday at his office in Seoul. (Kim Gyoung-ho/The Hankyoreh)

Global tensions remain high over semiconductors. As the shortfall in vehicle semiconductors continues, there’s a growing rivalry between countries seeking to alter the supply chain to their advantage. With the US and China locked in a hegemonic struggle, many analysts think South Korea is in an awkward position between the two powerful countries.

What do these developments look like to Chin Dae-je, the South Korean entrepreneur once known as “Mr. Semiconductor”?

Chin, aged 69, is regarded as having been a key figure in Samsung Electronics’ phenomenal success in the semiconductor industry, including the development of the world’s first 16-mega DRAM semiconductor. Today, Chin is the chairman of SkyLake Investment.

“While it’s true that South Korea is facing risk factors, I see this not as a crisis but as an opportunity,” Chin told the Hankyoreh in an interview on Friday.

“When we talk about a company in crisis, we mean it’s stopped growing, it’s losing money, or it doesn’t have any money to invest. But that’s not happening in the semiconductor sector,” Chin said.

“Have prices fallen because of oversupply? Generally, there’s an undersupply. Automakers are hard pressed to find chips for vehicles. Five or six years ago [in 2015], China dumped around 300 trillion won (US$270 billion) into the semiconductor sector in the hope of catching up with Samsung, but look at those efforts now. China is nowhere near to achieving that goal.”

But Chin added that South Korea does face risk factors that could lead to a crisis.

“South Korea is an important country in the global semiconductor industry. There’s a moderate risk that the US and China will declare semiconductors to be a strategic industry in their hegemonic rivalry and that South Korea will be dragged to one side or the other in the resulting tug-of-war,” Chin said.

“But should that be called a crisis? Doesn’t that just point to how valuable we are? The US is openly asking for investments, after all.”

“When China announced its plan to become a manufacturing powerhouse by 2025 and to localize around 70% of semiconductor production as part of that plan, it prompted the US to launch countermeasures. In retrospect, China appears to have gotten ahead of itself.”

“China was effectively telling other countries to shut down their manufacturing sectors and declaring that it would push the US out of the top spot. China’s Belt and Road Initiative is the same kind of idea. [China] no doubt thought the plan was feasible, but semiconductors are a real challenge. The Chinese recruited quite a few South Korean engineers in the field of memory semiconductors, but things didn’t go as planned. Chinese efforts were bound to take time because Samsung has a near-monopoly on powerful technology and jealously guards against leaks of that technology.”

“Once Biden became president, US efforts to contain China intensified. Under Trump, the US had a simple strategy of putting sanctions on China. But Biden is tightening the supply of semiconductors while also pressuring China on human rights issues. His approach is less boisterous but much scarier.”

Chin Dae-je, the South Korean entrepreneur once known as “Mr. Semiconductor,” speaks during an interview with the Hankyoreh on Friday at his office in Seoul. (Kim Gyoung-ho/The Hankyoreh)

Hankyoreh (Hani): China has the power of a huge consumer. Don’t you think it could take steps to retaliate or counter South Korea if it gets too close to the US?

Chin Dae-je (Chin): That could manifest in several ways. China has no choice but to buy semiconductors. Since it gets most of its memory semiconductors from South Korea, I think it could look elsewhere for leverage [when there’s a shortfall in supply]. It could even ask Samsung to build memory semiconductor factories or fabrication plants [in China]. If [China] asks Samsung within the next few years to make even half as big an investment in China as it made in the US, it wouldn’t be easy for South Korea to turn it down. If there’s a crisis, that’s where it would likely arise. That has more to do with Korea’s geographical location than with its companies. Big decisions will have to be made.

Hani: What’s your take on worries that Samsung Electronics is falling further behind the Taiwanese firm TSMC in the dedicated foundry sector? Do you see that as a crisis?

Chin: Samsung Electronics and SK Hynix together control more than 70% of the global memory semiconductor sector. And memory semiconductors represent one-third of the entire semiconductor industry. That’s how much of the semiconductor market is corned by Korea.

TSMC only produces semiconductors for other companies and doesn’t have its own brand. It makes up about 60% of the dedicated foundry market. How could Korea take that over? Let’s say we take over half of TSMC’s share. Would that be OK? Would the US and China let that happen? I don’t see anything wrong with the current setup. Samsung Electronics by itself accounts for 10-20% of the dedicated semiconductor foundry industry. That’s a presence that other companies can’t hope to match in the memory sector.

TSMC fulfills semiconductor orders from companies such as Apple and Nvidia. Weakening that capacity would be a big issue for the US. What would happen if the Taiwanese plant had to shut down because of a missile strike? The US would be forced to build its own foundries.

Hani: Samsung has said it will invest 171 trillion won (US$153.89 billion) to become the world’s leading company in system semiconductors by 2030.

Chin: Samsung could certainly become the world’s leader when memory and system semiconductors are viewed together. But I don’t think it could feasibly reach number one in system semiconductors. [In that sector,] Samsung also makes products for its own use. As a maker of “application processors,” Samsung is a rival of Qualcomm and Nvidia. Since Samsung makes chips both for itself and for others, there are bound to be conflicts of interest in the area of system semiconductors. Don’t you think companies like Nvidia are a little nervous about entrusting chip production to Samsung? They might worry about the possibility of Samsung snooping around [in their design].

There are limits to Samsung’s growth potential in the dedicated foundry sector as long as it doesn’t split off its operations into completely separate companies. Samsung might grow to half the size of TSMC, but pushing past TSMC doesn’t seem practical to me. And even if Samsung could do that, it wouldn’t be desirable.

Memory semiconductors might elevate Samsung to number one in the overall semiconductor market within a few years. At the moment, the top company overall is Intel, which is about 10% bigger than Samsung. In 2016 or 2017, Samsung was briefly the world’s biggest chipmaker. South Korean companies account for US$70 billion of the US$100 billion memory market, with 70% of that belonging to Samsung Electronics.

Hani: How would you assess the K-Semiconductor Belt Strategy that the South Korean government announced in May?

Chin: I think it’s the best of the various strategies that have been devised for the government’s semiconductor policy over the past 20-30 years. The strategy broadly covers materials, parts, and packaging [enclosing a manufactured chip in a package to protect it from damage and connect its circuits to an external power source], and I think it’s based on a solid understanding of the issues. It’s a comprehensive policy to promote development both in the fabless [chip design] and dedicated foundry sectors. So on paper at least, it’s a well-made strategy. It will have to be carried forward by the next administration, of course.

Hani: The Japanese government’s export controls two years ago were directly linked to semiconductors.

Chin: The Japanese made a big deal about halting exports of those three items, but Japan ended up losing face. Japan was playing a power game that it shouldn’t have taken so far. [Things are fine for now,] but [dangers] are lurking everywhere. It’s not just those three export items. There are probably other parts and materials that we’re totally dependent on Japan for. We need to make sure that diplomatic spats don’t lead to disruptions of cooperative relationships and the international division of labor.

After graduating from Seoul National University, Chin received a doctorate in electronic engineering from Stanford University in the US. While working at an IBM laboratory, he was recruited to Samsung Electronics in 1985 and played a major role in developing the world’s first 16-mega DRAM chip. At various times, Chin served as head of Samsung’s memory division, IT and home appliances division, and digital media division, gaining the nickname “Mr. Semiconductor.”

Chin also served as Minister of Information and Communication during the presidency of Roh Moo-hyun. In 2006, he established a venture capital firm called SkyLake Investment, where he is currently chairman. The name SkyLake is a literal translation of Cheonji, the lake at the top of famed Mount Baekdu, on the border between North Korea and China.

By Kim Young-bae, senior staff writer

Please direct comments or questions to [english@hani.co.kr]