November 29, 2024

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Jang Hye-lim, senior director at Fair Trade Commission (Fair Trade Commission)

By Jang Hye-lim

The return of President Donald Trump signals a transformative moment for the global semiconductor industry. Geopolitical tensions, trade restrictions and rapid technological advancements are reshaping this critical sector. South Korea's semiconductor giants, Samsung Electronics and SK hynix, are global leaders in the memory chip market, but maintaining their dominance in this evolving landscape will require strategic adaptability. They face unprecedented challenges as they navigate fierce competition, heightened regulatory scrutiny, and the accelerating pace of technological innovation.

Antitrust enforcement has become a central issue for the semiconductor industry. Regulatory bodies in the US, the EU and other major jurisdictions are intensifying their scrutiny of tech giants, including semiconductor companies. Samsung’s past antitrust penalties, such as those related to DRAM price-fixing, underscore the importance of adhering to competition laws and maintaining ethical business practices. Sustained market leadership will depend on strict compliance and transparent operations, which mitigate regulatory risks and foster stakeholder trust.

Geopolitical pressures add further complexity. The Trump administration’s protectionist trade policies, including restrictions on semiconductor exports to China, have disrupted global supply chains and increased uncertainty for South Korean companies. China remains the largest consumer of semiconductors, accounting for nearly 60 percent of global demand in 2023. To counter these risks, Samsung and SK hynix must diversify their supply chains, identify alternative markets, and intensify investments in research and development to retain their technological edge.

Compounding these challenges is the rise of Taiwan Semiconductor Manufacturing Company, the dominant force in advanced logic chips. These chips are critical for powering cutting-edge technologies such as artificial intelligence, 5G and high-performance computing. TSMC’s partnerships with leading firms like Nvidia, Apple and AMD have cemented its control over the global supply chain. In contrast, Samsung and SK hynix have traditionally focused on memory technologies. To remain competitive, they must significantly expand their capabilities in logic chip production, requiring substantial R&D investments and a strategic shift in their business models.

Their relationship with NVIDIA highlights both opportunities and risks. Samsung and SK hynix supply high-bandwidth memory, essential for Nvidia’s AI-driven products, contributing to the company’s $13 billion in AI-related revenue in 2023. However, heavy reliance on a single customer exposes them to vulnerabilities, particularly as TSMC continues to dominate the production of Nvidia’s advanced processors. To mitigate this dependency, Samsung and SK hynix must diversify their client portfolios and develop innovative memory solutions tailored to a broader array of AI applications. This will strengthen their market position and reduce exposure to customer concentration risks.

Incremental improvements are no longer sufficient in the fast-moving semiconductor industry. Samsung and SK hynix must embrace transformative technologies to stay ahead. Investments in advanced packaging techniques, such as 3D stacking -- which reduces latency by up to 50 percent -- and next-generation DRAM like DDR5, which offers speeds up to 85 percent faster than its predecessor, will be critical to meeting the growing demands of AI and high-performance computing. Quantum computing represents another transformative frontier. By partnering with global leaders like IBM and Google Quantum AI, Samsung and SK hynix can pioneer quantum-optimized memory solutions, securing a leadership role in this emerging domain.

Sustainability is also a pressing priority. The explosive growth of AI has driven energy consumption in data centers to unprecedented levels, with their share of global electricity usage projected to reach 3 percent by 2030. Samsung and SK hynix are uniquely positioned to lead the industry in sustainable innovation. Developing low-power memory technologies and adopting eco-friendly practices throughout their supply chains can significantly reduce their environmental impact while appealing to ESG-conscious investors and customers.

Building a robust domestic semiconductor ecosystem is essential for long-term competitiveness. Collaborating with the Korean government, academia and industry partners, Samsung and SK hynix can foster a thriving innovation hub that attracts top talent, advances research and development and strengthens Korea’s technological leadership. TSMC’s success in collaborating with Taiwanese research centers to establish a globally competitive semiconductor ecosystem provides a valuable model. By replicating this approach, Samsung and SK hynix can ensure that Korea remains a key player in the global technology landscape for decades to come.

The challenges facing Samsung and SK hynix are significant, but so are the opportunities. Navigating the complex interplay of geopolitical tensions, antitrust enforcement, and rapid technological change requires a careful balance of compliance, innovation and collaboration. However, these companies are well-equipped with the tools and resources to succeed. By leveraging their existing strengths, embracing transformative technologies, and fostering a resilient ecosystem, Samsung and SK hynix can not only secure their leadership in the semiconductor industry but also help shape Korea’s role in the global economy.

Jang Hye-lim is a senior director at Fair Trade Commission. The views in this column are her own. -- Ed.