Memory still rules Korean IC manufacturing

By J. Robert Lineback, Senior Technical Editor

During the past nine years, South Korea’s $20 billion-plus chip industry has been hammered and reshaped by a variety of financial and semiconductor market forces. What has emerged is a more diversified semiconductor supplier base in Korea, consisting of four major chipmakers pursuing very different business models, but memory products still dominate the country’s output.

“Memory – in particular DRAMs and flash products – could represent nearly 90% of Korea’s semiconductor sales, excluding the foundry business,” estimates analyst Nam Hyung Kim, who tracks memory markets and manufacturers at iSuppli Corp. in El Segundo, CA. Kim, who used to work in the Korean chip industry during the 1990s, believes Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc. now supply nearly 40% of the world’s memory products.

A strong rebound in memory markets during the past several years has helped Korea’s chip industry to get back on its feet and increase capital spending on fabs after a great deal of change since the 1990s. Sharp declines in worldwide DRAM sales from an all-time peak in 1995 and the 1997 Asian financial crisis played havoc with the Korean chip industry, which, until six years ago, was primarily made up of semiconductor subsidiaries operated by South Korea’s three largest chaebols – Hyundai, Samsung, and LG.

A series of mergers and spinoffs, along with a foundry startup, has restructured Korea’s semiconductor industry into four major players: Samsung Electronics, Hynix, newly formed MagnaChip, and pure-play foundry supplier DongbuAnam Semiconductor.

Only Samsung, the industry’s largest memory supplier and No. 2 chipmaker in the world, remains intact as a vertically integrated electronics manufacturer, noted analyst Bill McClean, president of IC Insights Inc. “That model [systems and chipmaking] can work very well and it is at Samsung, as well as companies like Sony and Sharp in Japan,” McClean said. “It is a matter of corporate dedication and the agenda. Samsung is proving that vertically integrated models can work.” McClean pointed to Samsung’s use of its own ICs in cell phones, consumer products, and other systems.

One elusive thing in Korea has been diversification from DRAMs and other memory products. The spinoff of nonmemory operations from Hynix to form MagnaChip Semiconductor in October is the latest effort to build a large semiconductor company outside of DRAMs and flash devices. “I think they will do well, but I certainly do not expect them to skyrocket or be a major force soon,” McClean said, noting the shift of competition worldwide. “Even Samsung has tried to shift more of its business outside of memories, but today memory is still 85% of its sales. Five years ago Samsung said it was planning to make nonmemory products about 30% of its semiconductor sales. It just hasn’t worked out that way.”

Overall, South Korea’s own domestic IC market accounts for about 16% of chip consumption in Asia (excluding Japan). IC Insights estimates that the value of ICs used in Korea was about $12.4 billion in 2004, and is expected to reach $18.4 billion by 2008, but the country’s market for chips is rapidly losing ground to China, which is forecasted to account for more than 50% of Asia’s IC purchases, or $70.3 billion, in about three years. — J.R.L.


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