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US President Joe Biden (left) President Yoon Suk-yeol (center), and Samsung Electronics Vice Chairman Lee Jae-yong (right) tour a Samsung semiconductor plant in Pyeongtaek on May 20, 2022. (Yonhap)

Recently, South Korean semiconductor companies such as Samsung Electronics and SK Hynix have been considering adjusting their investment plans for the remainder of this year and next year.

Uncertainty has been on the rise with the fall in semiconductor prices as a result of weak demand connected with global inflation. Another concern is the US’ increased export restrictions targeting China, including restrictions on semiconductor materials and software.

Some experts are even predicting a total price collapse in the fourth quarter.

On Monday, TrendForce, a market research company, predicted a possible crisis regarding the “collapse of semiconductor prices in the fourth quarter of this year.”

Previously, on Aug. 24, TrendForce updated its predicted drop in NAND flash prices for the third quarter from the original forecast of 8%-13% to 13%-18%. Then, on Thursday, TrendForce revised its forecast once again, now predicting that NAND flash prices would drop 30%-35%.

The research firm also predicted that the plunge in semiconductor prices could lead to mergers and acquisitions between companies. In other words, this means that a game of chicken could once again break out in the semiconductor market.

Looking back at the 2007-2008 period of the financial crisis, Taiwanese semiconductor companies began to cut prices, leading to cutthroat competition between companies.

As a result, the price of DRAM, which was US$7 in 2006, fell to US$0.5 in 2009 while the world's second-largest DRAM producer, Germany’s Qimonda, went bankrupt in 2009.

In this current situation, US semiconductor export regulations toward China are acting as an increasingly critical factor affecting South Korean companies.

“In addition to falling prices, US actions have not been determined, so it is an unclear situation,” one official from a local semiconductor company said. “The need to make adjustments in investment and employment has grown, but we are not sure how to go about this," the official added.

Similarly, Kim Yang-paeng, senior researcher at the Korea Institute for Industrial Economics and Trade says that “uncertainty in the semiconductor industry is increasing due to simultaneous risks such as an excess supply of semiconductors, falling prices due to decreased global demand and increased inventory, China’s rapid pursuit of technology, and the intensifying rivalry between the US and China for technological hegemony.”

In fact, a significant number of semiconductor experts are indeed saying that South Korea’s semiconductor industry is currently in a serious situation.

To this point, the Korea Chamber of Commerce and Industry conducted a survey on 30 semiconductor experts to gauge their thoughts. According to the results of the survey, which were published Monday, 56.7% of experts said we are at the “beginning stages of a crisis” while 20% believed we are “in the middle of a crisis.”

This means that more than 7 out of 10 experts see the current semiconductor situation as one that can be defined as a crisis.

What’s more, more than half of the experts, 58.6% to be exact, expect the crisis to “continue into the year after next.” There were also many opinions that the current situation is the most serious it has been in the past decade.

43.4% of experts said the current situation was "more serious" than China's entry into the semiconductor memory market in 2016 and also more serious than the 2019 trade dispute between the US and China.

“If the fluctuations in the semiconductor industry in the past were mainly due to the temporary deterioration of the external environment and semiconductor cycles, the current situation has an added aspect in connection with supply chain competition among major powers, the end of which remains out of sight, and China's pursuit of technology,” says Burm Jin-wook, a professor of electronic engineering at Sogang University.

“The sense of crisis and anxiety in the industry is greater than ever," Burm added.

Regarding what can be done to ameliorate the dire situation, 43.3% of the surveyed semiconductor experts cited government diplomatic efforts such as Chip 4 as the most important task for the development of the semiconductor industry.

30% responded by citing the need to train human resources, 13.3% cited the expansion of research and development support, and 10% cited issues regarding the investment tax system and the need for greater financing.

“Semiconductors have emerged as strategic and security-related issues, resulting in intricate challenges that need solving in terms of politics, foreign policy, and security,” says Lee Jang-sik, professor at POSTECH.

“In order for South Korean companies to maintain their competitiveness and do well in sales, the role of the government, not just of companies, has become much more important than in the past.”

By Lee Jeong-hun, staff reporter

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