Global Semiconductor Battle Intensifies

Recently, according to Reuters, South Korea is preparing a series of support plans worth over 10 trillion won to provide for chip investment and research. South Korea's Deputy Prime Minister and Minister of Economy and Finance, Choi Sang-mok, stated that the target of this support plan is the entire semiconductor supply chain, including chip material manufacturers, equipment manufacturers, and fabless companies. The government will soon announce the details of this series of support plans.

The aforementioned report indicated that South Korea has set its sights on a "war" in the semiconductor industry. Previously, South Korean President Yoon Suk-yeol had declared that he would invest all possible resources to win the competition in the semiconductor industry.

The reporter noticed that with the new explosive development of artificial intelligence, semiconductor chips have become the core and foundation of AI computing power, intelligent driving, and many other industries, and are also becoming a new battleground for competition among the world's major countries.

On August 20th, the European Commission approved a total of 5 billion euros in state aid to support European semiconductor manufacturing companies in establishing chip manufacturing plants in Germany. Just one day before, Texas Instruments (TI) on the other side of the ocean stated that as part of efforts to promote the development of the U.S. semiconductor industry, it would receive up to 1.6 billion U.S. dollars in funding from the U.S. Department of Commerce for the construction of three semiconductor factories. Japan has also been active recently, actively introducing chip leaders like TSMC, nurturing local companies like Rapidus aiming at cutting-edge processes, and Japan is developing the semiconductor industry with unprecedented huge subsidies and promotion efforts.

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Several industry insiders said in an interview with the reporter that the rapid development of artificial intelligence technology is changing the global semiconductor industry landscape. The huge demand for high-performance, high-computing power chips driven by artificial intelligence is promoting continuous innovation and upgrading of the semiconductor industry, and thus ushering in a huge market growth space. How to seize the opportunity of the semiconductor industry chain restructuring and occupy a larger market and advantageous position has become the focus of competition.

The semiconductor competition continues to escalate.

As the fourth-largest economy in Asia, South Korea is home to global chip industry leaders Samsung Electronics and SK Hynix. According to statistical data released by the Ministry of Trade, Industry, and Energy of South Korea, semiconductors are South Korea's main export product, with an export value of 11.7 billion U.S. dollars in March this year, the highest level in the past two years, accounting for about one-fifth of South Korea's total export volume.

According to South Korean media analysis, against the backdrop of countries pursuing localization of the semiconductor industry and intensifying competition for dominance, the stable economic growth of South Korea in the future also depends on the development of the semiconductor industry.

Around the development of the semiconductor industry, South Korea has been active in recent years. At the enterprise level, taking Samsung as an example, it announced an investment plan of 450 trillion won over the next five years as early as May 2022, aiming to put itself in a leading position in key areas from semiconductors to bio-products; the South Korean government has provided 3.6 trillion won in policy financing for the semiconductor industry since this year.

It is reported that South Korea also plans to establish a "giant semiconductor cluster" south of Seoul by 2047. South Korea calls it the world's largest semiconductor high-tech complex, focusing on high-precision technology and products. Currently, Samsung Electronics and SK Hynix have decided to invest a total of 622 trillion won.In addition, South Korea plans to invest heavily in six key technologies, including chips, displays, and batteries, which are core areas where South Korean tech giants have already made efforts and established advantages. Coincidentally, South Korea's close neighbor, Japan, has also been very active in the semiconductor field recently. TSMC, the world's leading semiconductor manufacturer, opened a factory in Kumamoto Prefecture, Japan, in late February this year, which is seen as an important step for Japan to seek the revival of the chip industry. TSMC plans to start construction on a second factory in Japan within the year, aiming to achieve mass production by 2027 and advance the process to 6 nanometers. It is reported that TSMC's first factory in Japan received a subsidy of up to 476 billion yen from the government, accounting for about 37% of the total expenditure of the wafer factory, and the Japanese government will also provide about 730 billion yen in subsidies for the second wafer factory. The Japanese Ministry of Economy, Trade and Industry will also increase subsidies for Micron Technology's factory in Hiroshima from $320 million to $1.29 billion, and provide up to about 243 billion yen in subsidies for the mass production of the most cutting-edge storage semiconductors at the factories of Japan's Kioxia and Western Digital in Japan. In addition to heavily investing in leading chip companies, the Japanese government is also increasing its investment in cultivating domestic cutting-edge processes. The Japanese Ministry of Economy, Trade and Industry announced that it will provide up to 590 billion yen in subsidies to Rapidus in the fiscal year 2024. Although Japan's share in the global chip market is less than 10%, it still holds a core position in the fields of semiconductor equipment and key materials such as photoresist. Industry insiders believe that the introduction of TSMC is expected to not only make up for Japan's shortcomings in semiconductor manufacturing but also drive the development of industrial clusters, consolidating its advantages in the fields of semiconductor equipment and materials. The reason why Japan is determined and heavily invested is not only because semiconductors, as a strategic industry, are related to "security" but also because they are expected to revitalize Japan's industrial economy. In fact, semiconductors have become a key field in global competition. On August 20, the European Commission approved a total of 5 billion euros in state aid to support European semiconductor manufacturing companies in establishing chip manufacturing factories in Germany, becoming the first major move after the European "Chip Act" came into effect. The person in charge of the European Commission said that the "Chip Act" is expected to help Europe's semiconductor industry attract more than 100 billion euros in private investment before 2030. In order to maintain the United States' global leading position in chip technology, since 2021, the U.S. government has taken a series of policy measures. The most typical is the "CHIPS and Science Act" passed in 2022, which plans to invest $280 billion over 5 years to make the United States lead China in the global competition for technological advantages.As China rapidly develops in key technology areas such as semiconductors, AI, and 5G, the United States is concerned about losing its advantageous position in the global technology field. Not long ago, the U.S. government revoked export licenses that allowed American chip manufacturers Intel and Qualcomm to supply semiconductor chips to Huawei. Subsequently, a bill was introduced to control the export of advanced AI models developed in the United States.

Industry insiders believe that the timing of South Korea's semiconductor support plan coincides with the United States pressuring it to restrict the flow of high-end logic and memory chip equipment and technology to China. At the same time, the United States is also urging South Korea, Japan, and others to further tighten restrictions on China's access to semiconductor technology.

Industry Bottom Rebound, Seizing the AI Track

After experiencing a cyclical decline over the past two years, the global semiconductor industry is welcoming a recovery in 2024, and the surge in generative AI also provides opportunities for the restructuring of the global semiconductor industry.

"The semiconductor industry experienced a downturn in 2023, with the industry declining by about 11%," said Ju Long, Global Vice President of the International Semiconductor Organization SEMI and President of China. Semiconductors are an industry with obvious cyclicality, and technological iteration is the engine driving the development of the semiconductor industry. SEMI estimates that semiconductor sales will grow by about 13% to 16% this year, possibly reaching $600 billion, and will continue to grow in the coming years, with an expected milestone of $1 trillion around 2030.

Data released by the Semiconductor Industry Association (SIA) in August confirmed the momentum of industry recovery. In the second quarter of 2024, the cumulative sales of the global semiconductor industry reached $149.9 billion, a year-on-year increase of 18.3%, and a quarter-on-quarter increase of 6.5%. SIA believes that these data are consistent with the current consumer and artificial intelligence boom.

Ju Long believes that there is a mutually reinforcing relationship between AI and semiconductors. AI smart application innovation drives the continuous growth of the semiconductor industry, and the computing power provided by graphics processing units (GPUs) makes AI smart applications possible, complementing each other. 2023 was the explosive year for generative AI, and generative AI applications will also enter the explosive period. The mutually promoting relationship between AI and semiconductor technology will accelerate the shaping of the industry's future and affect the direction of the industry.

In terms of sales by country or region, compared with the same period last year, the United States increased by 42.8%, China increased by 21.6%, Japan decreased by 5.0%, and Europe decreased by 11.2%.

Against the backdrop of industry recovery and industry growth, the performance of semiconductor companies has also improved.

The reporter noticed that as of August 20, among the 157 A-share industry chain companies with semiconductors as samples, there are 68 companies that have announced semi-annual performance reports, performance forecasts, and semi-annual reports. Among them, 55 companies have achieved positive growth, accounting for 80.88%, and 40 companies have achieved year-on-year growth of more than 50%.Among them, North Microelectronics and Will Semiconductor achieved net profits of 2.96 billion yuan and 1.408 billion yuan, respectively; companies with net profit growth exceeding five times include Changchuan Technology, Will Semiconductor, and Rockchip, among others. It is also worth noting that the two leading wafer foundries, SMIC and Hua Hong, both delivered results that exceeded market expectations.

Previously, the global semiconductor industry authority, The McClean Report, released the final ranking of the world's Top 25 semiconductor suppliers for 2023. Looking at the geographical distribution, American companies hold a dominant position in the list, with 13 semiconductor companies headquartered in the United States making the list, accounting for more than half of the total. Taiwan, Europe, and Japan each have three companies on the list, demonstrating the strong presence of these regions in the semiconductor field. South Korea has two companies on the list, while mainland China has one company (SMIC) that has entered the global Top 25.

Although China is currently relatively behind in the semiconductor industry, especially in high-end semiconductors, as the world's largest consumer electronics market, China's demand for semiconductor products continues to grow. The Chinese semiconductor industry has a solid foundation for development in terms of technological innovation, market demand, and industry ecosystem. With the rapid development of artificial intelligence, the Internet of Things, and other technologies, the demand for semiconductor products in the Chinese market will further increase, providing a huge market opportunity for the Chinese semiconductor industry.

Xinmou Research's Director Wang Xiaolong said to the reporter, "For domestic companies, although it is difficult to break through in the field of high-end computing chips, the penetration rate of domestic intelligent driving is growing rapidly. At the same time, influenced by the recovery of the consumer electronics industry and the promotion of domestic substitution, companies in domestic semiconductor design, equipment, and materials have achieved continuous growth."

In fact, in recent years, China's domestic semiconductor equipment industry has achieved a leapfrog development from non-existence to strength. The domestic semiconductor industry ecosystem is continuously improving, and the self-sufficiency rate of domestic high-end equipment is gradually increasing.

"Hundreds of semiconductor equipment companies in China are working hard and developing rapidly. There are more than 20 mature companies that cover all categories of the top ten types of semiconductor equipment. I am very confident in the development of the industry. It is expected to reach the world's most advanced level in 5 to 10 years," said Yin Zhiyao, Chairman of Sino Micro.

(Note: The translation has been provided in a manner that maintains the original meaning and context of the Chinese text, while ensuring that it is in English and adheres to the requested format.)