The South Korean government aims to further expand domestic chip production capacity with an investment of 510 billion euros. European plans represent only a fraction of that investment.
South Korea has announced an investment equivalent to approximately 510 billion euros (900 trillion won). This money is intended to boost the country’s domestic chip industry. This is notable, as South Korea already plays a prominent role in global microchip production.
The funds will go toward an initiative led by Samsung and SK Hynix. Both companies will build two new factories. Samsung is looking at a completely new site in the southwest of the country, near the city of Gwangju. Currently, the bulk of the chip industry is located near the capital, Seoul. SK Hynix is still searching for suitable sites.
Focus on memory
Although Samsung also manufactures processors, including for smartphones, memory is the primary specialization for both parties. Presumably, the new factories will therefore increase memory production capacity. This is beneficial for the entire world, although the manufacturers’ actual production capacity will not increase immediately. SK Hynix mentioned in passing that it took nine years to build its primary factory site.
the manufacturers’ actual production capacity will not increase immediately.
The funding for the plan comes primarily from Samsung and SK Hynix themselves, totaling 800 trillion won. The final 100 trillion won (about 56.6 billion euros) comes from local governments. The South Korean government will further support the project through peripheral infrastructure as well as the streamlining of permits.
12 years faster
SK Hynix already had an ongoing long-term investment strategy. Initially, the company wanted to bring a new manufacturing cluster online by 2045. Linked to the Korean strategic plan and with government support, this should now be achieved by 2033, twelve years earlier than expected.
South Korea also intends to use the chips itself. Another 375 trillion won (202 billion euros) will go toward the production of new data centers. It is no surprise that the focus there is on AI.
Risk of overinvestment
The investments come almost simultaneously with the publication of the annual economic report from the Bank for International Settlements. This central bank of central banks warns in it of the risk of overinvestment. If the demand for memory drops within a decade when the factories are ready, their construction could weigh heavily on the profit margins of SK Hynix and Samsung.
Furthermore, the initiative puts the European Chips Act into perspective. Europe wants to further increase its own share of global chip production and allocated 86 billion euros to this in 2023.
Fraction of the budget
In practice, the Chips Act was able to unlock 52 billion euros in public and private investment, accounting for 46,000 direct and indirect jobs. The money is a fraction of the South Korean plan, and even less than the public share of that strategy.
With the Chips Act 2.0, Europe hopes to set things right, but that regulation mainly concerns the streamlining of framework conditions such as permits. As the South Korean plan demonstrates, this is also important, but large budgets are still pending.
Share is falling
This means that European chip ambitions remain a dead letter for now. Europe wants to bring twenty percent of global chip production to its territory, but despite the investments, it is not succeeding. This is because production capacity in other countries is growing faster than within the EU.
The boost in South Korean production capacity makes the situation even more urgent. The faster other regions increase their share of chip production, the smaller the EU’s global share becomes in comparison.