South Korea mulls creating 'KSMC' contract chipmaker to compete with TSMC, requires a $13.9 billion investment

Although Samsung Foundry is a major chip contract manufacturer, the South Korean government mulls creating a government-funded contract chipmaker tentatively called Korea Semiconductor Manufacturing Company, KSMC, reports The Korea Biz Wire. Industry experts and academics have proposed the initiative.

The Semiconductor Industry Association's Ahn Ki-hyun called for a long-term government investment. Experts project that an investment of KRW 20 trillion ($13.9 billion) in KSMC could result in economic gains of KRW 300 trillion ($208.7 billion) by 2045. However, the big question is whether $13.9 billion is enough to establish a chipmaker. Another concern about publicly funded corporations like KSMC is whether they could develop advanced manufacturing technologies and land enough orders from clients to be profitable. It turns out that in addition to semiconductor makers, Korea needs more fabless software developers.

The proposal was introduced during a seminar hosted by the National Academy of Engineering of Korea (NAEK). The plan aims to address structural weaknesses in the industry, such as an over-reliance on Samsung's advanced nodes under 10nm amid the lack of mature process technologies. Smaller system semiconductor firms struggle to thrive as Korea lacks manufacturing diversity, as seen in Taiwan, where companies like UMC and PSMC that focus on mature and specialty nodes complement TSMC's advanced process technologies.

Korea is the world's largest maker of memory. However, it is far behind Taiwan when it comes to logic process technologies and chip designers, and the situation is not getting any better. According to the report, key challenges facing Korea's semiconductor industry include a widening technological gap with international competitors, insufficient investment attractiveness, weak growth in fabless companies, talent shortages, and restrictive regulations. Experts at the seminar emphasized the need to address these issues urgently to sustain Korea's global leadership in semiconductors.

The CEO of SK Hynix proposed repurposing Samsung's older fabs for legacy process technologies. NAEK called for strengthening R&D efforts and offering financial incentives such as subsidies and tax credits. Other suggestions include reducing regulatory burdens, especially on working hours. TSMC engineers have publicly said multiple times that extended work hours enable the rapid development of advanced process technologies.

Not everyone knows, but while Morris Chang helped found TSMC, he was invited to do so by Executive Yuan, the government of Taiwan, which recognized the potential of the semiconductor industry back in the 1980s and wanted to build it in the country. While TSMC is not the only semiconductor maker in Taiwan, the flagship foundry is fundamentally important for the Taiwanese semiconductor ecosystem.

The initiative of NAEK draws inspiration from Taiwan's semiconductor ecosystem, which enables over 250 fabless companies to flourish in Hsinchu Science Park alone. By creating KSMC with government backing, Korea could replicate this success and provide smaller firms with the resources to grow alongside industry giants like Samsung and SK Hynix. SK Hynix CEO Kwak No-jung proposed directly supporting smaller suppliers of materials, parts, and equipment, which would benefit large corporations, which now have to source many materials from Japan and Taiwan, which means additional costs.

The KSMC proposal represents Korea's ambition to secure its place in the global semiconductor race while addressing foundational weaknesses in its chip sectors. Experts believe that with timely investments and a focus on ecosystem growth, Korea can enhance its competitiveness and generate substantial long-term economic benefits.