Samsung Electronics and SK Hynix achieved impressive operating profit margins of 70% and 76%, respectively, in the second quarter. However, as of July 30, their stock prices have fallen nearly 40% and 50%, respectively, from their June peaks. Both companies and experts agree that a memory supply shortage will persist until 2028, but concerns about overproduction following their announcements of multi-trillion won expansions remain.
Nevertheless, the die has been cast.
In Pyeongtaek, dozens of tower cranes are continuously at work.
Large construction vehicles are moving around the site of Samsung's semiconductor production facility, and the surrounding roads and commercial areas are buzzing with activity as the industrial city prepares for new production lines.
In Yongin, the development of a large-scale semiconductor cluster is also accelerating. The domestic semiconductor production axis, previously concentrated in Giheung, Hwaseong, Pyeongtaek, and Icheon, is now expanding to include Yongin, Cheongju, Cheonan, and Onyang, reshaping the southern industrial corridor of the capital region into a nationwide semiconductor network.
This transformation is driven by a boom in AI semiconductors. Samsung and SK Hynix have reported record performances based on the demand for memory for AI servers, prompting both companies and the government to embark on the establishment of large-scale production facilities and packaging hubs with a long-term vision of over a decade. However, much of the announced investment amounts are part of a long-term roadmap, and the actual timing and scale of execution may vary based on market conditions and corporate decisions.
Investments in semiconductors are not only changing production capacity but also necessitating the establishment of extensive infrastructure. Operating a state-of-the-art fab requires a large supply of electricity and industrial water, transmission networks, roads, logistics facilities, and residential bases for skilled workers. This means that investments in AI semiconductors are effectively becoming national infrastructure projects that create new industrial cities and living areas.
The government's so-called 'Chip Republic' initiative is also situated within this trend. The strategy aims to expand the semiconductor industry, which has been concentrated in the capital region, into a nationwide ecosystem by connecting advanced packaging in the Chungcheong region, materials, components, and equipment in the Yeongnam region, and new production bases in the Honam region.
'AI Money Party' Has Already Begun
Just one or two years ago, the expansion of AI investment was more about future expectations. However, the situation has changed.
High Bandwidth Memory (HBM), a key component for AI servers, continues to face a global supply shortage, and SK Hynix, which was among the first to secure this market, is recording some of the highest profitability among major global semiconductor companies.
Samsung Electronics is also beginning to reap the benefits of the AI supercycle, achieving its highest-ever performance in the semiconductor business, driven by a recovery in memory market conditions and increased AI demand.
The market is already responding. Global tech giants like Microsoft, Meta, Amazon, OpenAI, and xAI are aggressively expanding investments in AI data centers, while semiconductor companies are racing to increase production capacity in anticipation of the ongoing AI infrastructure competition over the next several years.
The semiconductor industry is now starting to view AI not as a 'future growth driver' but as 'the most lucrative industry at present.'
This signifies that AI has entered a phase where it simultaneously boosts the performance of semiconductor companies and the national economy.
A New War Showcased in San Francisco
Recently, an AI event held in San Francisco illustrated a complete shift in the nature of semiconductor competition.
Samsung announced an expansion of its collaboration with Broadcom, covering HBM, foundry, and advanced packaging.
This marks a departure from the era of merely supplying memory chips; a 'one-stop AI supply chain' competition encompassing design, production, and advanced packaging has begun.
AI semiconductors are no longer just a single component.
GPU, HBM, advanced packaging, ultra-fine processes, and power efficiency must all be interconnected to complete a single AI system.
The competitive edge in the AI era is shifting from individual products to the entire supply chain.
This change signifies important transformations for the South Korean semiconductor industry.
Merely having memory competitiveness is no longer sufficient.
To maintain global competitiveness, it is essential to integrate advanced packaging, foundry, materials, components, equipment, and AI data centers into a single industrial ecosystem.
The government's push to create a 'semiconductor belt' rather than just 'semiconductor cities' is rooted in this understanding.
Building Cities, Not Just Factories
During a recent visit to Samsung's Pyeongtaek campus, construction of the P5 facility was in full swing.
Dozens of tower cranes were operating simultaneously, and large dump trucks and ready-mix concrete vehicles were constantly in motion.
From a distance, the construction site resembled not just a factory being built but rather a new city coming to life.
It wasn't just Pyeongtaek.
In Yongin, Samsung and SK Hynix are each developing massive semiconductor clusters.
While the construction sites are still dusty, plans are in place for the world's largest AI semiconductor production facilities to be established here.
However, it's not just factories being built.
Infrastructure for industrial water supply, substations, transmission networks, roads, logistics facilities, and worker accommodations and dining options are also being developed.
What is emerging is not just a semiconductor factory but an entire industrial city.
AI is not just building factories; it is creating cities.
Why the 'Chip Republic' Has Reached Honam
The core of the government's recently announced 'Chip Republic' project is not merely to increase the number of semiconductor factories.
The goal is to expand the semiconductor industry, which has been concentrated in the capital region, into a nationwide AI industrial ecosystem.
Previously, the southern Gyeonggi region connecting Giheung, Hwaseong, Pyeongtaek, and Icheon was essentially the entirety of South Korea's semiconductor industry.
However, in the AI era, relying on a single factory is no longer sufficient for competitiveness.
The government plans to develop the Chungcheong region as a hub for HBM production and advanced packaging, strengthen the materials, components, and equipment industries in the Yeongnam region, and establish a new semiconductor production belt in Honam. This strategy aims to integrate AI data centers, power networks, research and development (R&D), and logistics infrastructure to expand the industry structure concentrated in the capital region nationwide.
This aligns with regional balanced development policies but is fundamentally an industrial strategy to respond to global AI supply chain competition.
AI semiconductors cannot be completed by a single company or factory. A massive ecosystem involving memory, system semiconductors, advanced packaging, materials, components, equipment, power, and water must operate simultaneously.
This is why the government is committed to creating a 'semiconductor belt' rather than just 'semiconductor cities.'
Samsung and SK: Different Strategies Under the Same Investment Plan
Even under the same 'Chip Republic' strategy, Samsung Electronics and SK Hynix face different challenges.
SK Hynix has emerged as the biggest beneficiary of the AI memory era by securing a leading position in the HBM market. Market attention is focused on how long this advantage can be maintained. The biggest challenge is to expand production capacity in a timely manner amid surging HBM demand.
In contrast, Samsung Electronics is a comprehensive semiconductor company that encompasses not only memory but also foundry and system semiconductors. In the AI era, it faces the dual challenge of recovering HBM competitiveness while simultaneously growing its advanced foundry and packaging businesses.
Recent expansions of collaboration with Broadcom are also an extension of this strategy, reflecting a commitment to evolve into an AI supply chain company that integrates design, production, and packaging.
While the investment directions of the two companies differ, the conclusion is the same: without building factories now, they risk losing market share in the next cycle.
It's Not Just South Korea in the Race
Time is not solely on South Korea's side.
The United States is expanding its AI semiconductor ecosystem centered around Nvidia, while Taiwan's TSMC is establishing itself as a key player in global AI chip production with its advanced process competitiveness. China is also accelerating its push for memory independence, backed by massive capital and a domestic market.
In particular, China's largest DRAM manufacturer, CXMT, is using funds secured through its recent IPO to expand production capacity and invest in technology development, chasing after Samsung Electronics and SK Hynix. While there is currently a technology gap in the advanced HBM market, analysts suggest that CXMT is pursuing a phased strategy to secure a market base through expanded production of general-purpose DRAM before moving up to high-spec HBM.
Lee Jong-hwan, a professor of system semiconductor engineering at Sangmyung University, stated, "If CXMT increases its DRAM production through expanded investment, it could pose a burden on Samsung Electronics and SK Hynix, which have maintained profitability based on supply shortages." He added, "The extent of the threat will depend on how quickly CXMT moves to expand investment and production."
Professor Lee assessed the technology gap between CXMT and domestic companies as one to two years for general-purpose DRAM and about three years for HBM. However, he noted that as general-purpose DRAM competitiveness increases, CXMT could sequentially secure technologies for HBM DRAM and post-process packaging, potentially accelerating its catch-up speed.
He emphasized, "Semiconductor investments take two to three years to yield actual production effects, so they must be made proactively. Both research and development and securing mass production and yield are essential for real corporate competitiveness." He further stated, "Korean companies must continue investing to maintain or widen the technology gap, as delaying investments could quickly narrow the gap with China."
Ultimately, the competition in AI semiconductors has transformed into a race where South Korea, the United States, Taiwan, and China are simultaneously expanding their technology and production capacities. The current advantage in HBM will not automatically carry over. The ability to build factories on time, pass customer certifications, and secure stable mass production yields will likely determine the market winners in the future.
AI is Changing Not Just Performance but the Landscape
As I toured Pyeongtaek and Yongin, what struck me most was not the size of the factories but the fact that cities are being built around semiconductor plants.
New roads are being laid, substations are being established, and industrial water supply networks are being connected. Partner companies and logistics firms are gathering, and restaurants and accommodation facilities are emerging, shifting people's living areas.
AI is not merely an industry that changes the performance of semiconductor companies. It is creating cities, moving people, and redrawing the industrial map of the nation.
The South Korean semiconductor industry, once concentrated in the capital region, is now expanding into Chungcheong and Honam. This change is not just about regional development; it is a strategic choice to survive in the global supply chain competition of the AI era.
The semiconductor industry has long experienced cycles of boom and bust. No one can guarantee that the current large-scale investments will lead to success a decade from now. If the pace of AI infrastructure investment slows, the massive production capacity could become a burden.
Nevertheless, the reasons South Korea finds it difficult to slow down investments are clear.
In the AI era, factories must be built proactively, as waiting for confirmed demand to begin construction is too late. It takes years for a factory to be completed, pass customer certifications, and enter mass production. Anticipating future demand and securing production capacity in advance is the survival strategy for this industry.
The 'Chip Republic' is no longer a vision for the future.
It is already becoming a reality in the construction sites of Pyeongtaek and Yongin, in the packaging strategies of Chungcheong, and in the plans for new clusters in Honam.
* This article has been translated by AI.
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