Industry experts see decline on horizon for S. Korean semiconductor sector, survey finds

Posted on : 2022-08-22 17:26 KST Modified on : 2022-08-22 17:26 KST
The PSI for the domestic chip industry was down 13 points for September, likely attributable to worsening conditions in relation to China
Inside the clean room semiconductor production line of Samsung Electronics (courtesy Samsung Electronics)
Inside the clean room semiconductor production line of Samsung Electronics (courtesy Samsung Electronics)

According to a survey about industry outlook, experts say most industries are on an upward trend while the semiconductor and shipbuilding industries are in a downturn. The outlook for the semiconductor industry was shown to be especially grim. As the South Korean economy in general heavily relies on the chip industry, the sector’s decline may cast a shadow on the outlook of the economy as a whole.

Additional unfavorable factors influencing the South Korean semiconductor industry include sudden changes in the international environment, such as the economic recession in China, the biggest market for Korean semiconductors, as well as the formation of Chip 4, a US-led semiconductor partnership that serves as the country’s strategy to keep China in check.

According to findings published Sunday by the Korea Institute for Industrial Economics and Trade, the professional survey index (PSI) for the semiconductor industry in September amounted to 35, 13 points lower than the previous month’s figure (48). This was in sharp contrast to the manufacturing industry, for which the PSI rose from 74 to 84 between August and September.

Conducted by FnGuide and Metrix, the survey asked 168 experts about demand conditions (domestic sales and exports), supply conditions (production level, inventory level, investment amount), and profit conditions (profitability, product price) of different industries from Aug. 8 to 12, after which expert responses were analyzed. PSIs were calculated on a scale of 0 to 200. Lower PSIs indicate that more experts projected relevant industries to see worse conditions compared to the previous month.

Of the 10 industries examined, only the semiconductors and shipbuilding sectors showed declines when compared with the month before. In the case of shipbuilding, the survey index dropped from 86 to 85.

The highest survey index for September was for the automobile industry. It was calculated at 130, or 18 points higher than last month. Steel and bioindustry/health also had levels above the reference point (100) at 108 (+58) and 105 (+14), respectively.

In the category of electronics (mobile phones and appliances), the survey index rose from 66 to 79. By subcategory, appliances dropped from 75 to 56 while mobile phones soared from 60 to 92.

The severe slump for semiconductors was also evident in a survey of August industry conditions, which shows the present situation. The semiconductor index dropped from 38 to 30 between July and August, while the index for all manufacturing rose from 73 to 76 over the same period.

According to the index levels, the only industries showing a decline compared with a month earlier were semiconductors, shipbuilding (110→90), and bioindustry/health (100→95).

The only industry with a business condition index above the reference point was automobiles at 110 (+1). In addition to automobiles, high scores were also observed for bioindustry/health, shipbuilding (90, down 20 points), textiles (84, up 16 points), and chemicals (77, up 12 points).

The reason for the grim situation and prospects in the semiconductor sector has mainly to do with China. Lockdowns of major Chinese cities amid a resurgence of COVID-19 cases have led to difficulties with procuring parts and producing items. Declining information technology demand in China has also been a major factor.

Since May, South Korea has been recording a trade deficit with China — an unusual trend in their trade relationship. That situation, and the declining proportions of Chinese sales for major companies such as Samsung Electronics, can be attributed in large part to the aforementioned factors.

During the first half of the year, China accounted for 30.462 trillion won out of Samsung Electronics’ 115.3655 trillion won in sales (separate), or 26.4% — a drop of 3 percentage points from the 29.4% level recorded in the first half of 2021.

Semiconductors are a significant enough area to influence trends across the South Korean economy. The economy as a whole relies heavily on exports, and semiconductors account for the largest single category among those exports.

Between January and July 2022, semiconductor exports totaled US$80.2 billion, or 19.5% of all exports (US$411.1 billion). In second and third place were petrochemicals (US$37.3 billion) and automobiles (US$29.5 billion), which respectively represented 9.1% and 7.2% of all exports.

China accounts for around 40% of South Korea’s semiconductor exports by dollar value; that percentage rises to 60% when Hong Kong is also included. It’s a system where an economic slump in China inevitably triggers a semiconductor-based ripple effect with negative consequences for the entire South Korean economy.

This situation is presenting a deepening quandary for South Korea’s chipmakers and government, together with the current strategies to rein in China’s influence, which include a US-led push to form a semiconductor dialogue uniting South Korea, Japan and Taiwan.

By Kim Young-bae, senior staff writer

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