South Korea is exploring the idea of establishing a government-backed chipmaker, tentatively called the Korea Semiconductor Manufacturing Company (KSMC), reports The Korea Biz Wire. The proposal, backed by industry experts and academics, comes in response to structural weaknesses in the country’s semiconductor sector.

Currently, Samsung Foundry is the dominant chip contract manufacturer in South Korea. However, experts argue that to ensure the country’s continued leadership in the global semiconductor market, significant government investment is needed. A proposal put forth by the Semiconductor Industry Association suggests an investment of KRW 20 trillion ($13.9 billion) into KSMC, potentially resulting in economic benefits of up to KRW 300 trillion ($208.7 billion) by 2045. Yet, questions remain about whether this amount will be sufficient to build a competitive chipmaker from the ground up.

One concern with publicly funded initiatives like KSMC is whether they can develop advanced manufacturing technologies and attract enough clients to be profitable. Experts have also pointed out that South Korea not only needs more chipmakers but also more fabless software developers to create a more balanced ecosystem.

The proposal was introduced during a seminar by the National Academy of Engineering of Korea (NAEK), which highlighted the country’s over-reliance on Samsung’s advanced nodes under 10nm. While South Korea excels in memory chip manufacturing, it lags behind Taiwan in logic process technologies and chip design. Taiwan’s semiconductor sector benefits from a diverse manufacturing landscape, with companies like UMC and PSMC complementing TSMC’s cutting-edge technology. In contrast, South Korea lacks this diversity, especially in the area of mature and specialty nodes.South Korea’s semiconductor industry faces several key challenges: a growing technological gap with global competitors, insufficient investment attractiveness, a shortage of talent, and restrictive regulations. Experts at the seminar stressed the urgency of addressing these issues to sustain the country's semiconductor leadership.

To tackle these problems, SK Hynix CEO proposed repurposing older Samsung fabs for legacy process technologies, while NAEK called for greater R&D efforts and financial incentives such as subsidies and tax credits. Some experts also suggested reducing regulatory burdens, particularly on working hours, in order to accelerate technological development, citing TSMC's success as a model.

The KSMC proposal draws inspiration from Taiwan’s semiconductor ecosystem, where over 250 fabless companies thrive in the Hsinchu Science Park. By establishing KSMC with government backing, South Korea could replicate this success, providing smaller companies with the resources needed to grow alongside industry giants like Samsung and SK Hynix. SK Hynix's CEO also proposed supporting smaller suppliers of materials, parts, and equipment, which would help reduce South Korea’s dependence on imports from Japan and Taiwan, potentially lowering costs for major manufacturers.

The creation of KSMC underscores South Korea’s ambition to address weaknesses in its semiconductor sector and solidify its position in the global chip race. Experts believe that with timely investments and a focus on ecosystem development, the country can enhance its competitiveness and reap long-term economic benefits.