Cash windfalls risk undermining Korea’s semiconductor edge

Lee Ha-kyung The author is a senior columnist at the JoongAng Ilbo. U.S. chipmaker Intel led the semiconductor industry from the 1970s, dominating the personal computer era. Its technological prowess was once described as if it had "captured extraterrestrials to extract chip secrets." Yet the company's decline began when executives with backgrounds in marketing and finance rose to the top. Their focus on short-term performance, cost cutting and shareholder returns came at the expense of investment and research and development. As a result, Intel missed the shift from PC chips to mobile processors. In 2016, then-CEO Brian Krzanich laid off 12,000 workers, about 10 percent of the workforce. Many of those dismissed were research and engineering talent who later joined rivals such as AMD. Critics even accused him of acting like "a spy for AMD." His successor, Bob Swan, reportedly declined an offer in 2017 and 2018 to acquire a 30 percent stake in OpenAI, citing a lack of immediate profitability. Japan's semiconductor industry once dominated the global market in the 1980s, with a dynamic random access memory (DRAM) share approaching 80 percent. However, the 1985 Plaza Accord led to a sharp appreciation of the yen, eroding price competitiveness. The U.S.-Japan semiconductor agreement further constrained the industry. Meanwhile, the United States provided technology and licensing support to latecomers such as Samsung Electronics, while TSMC also benefited. Japan's decline was compounded by overconfidence. In the 1989 book "The Japan That Can Say No," co-authored by Shintaro Ishihara and Akio Morita, the authors argued that the United States could not produce advanced weapons without Japanese semiconductors and called for a shift from a secondary to a hegemonic power. Washington came to view Japan's semiconductor sector as a security threat and responded accordingly. Japanese companies also missed critical investment timing. Despite their strength in memory chips, they failed to adapt as the market shifted to PCs, mobile devices, servers and artificial intelligence. Elpida Memory, formed by merging the DRAM businesses of NEC, Hitachi and Mitsubishi, collapsed in 2012 despite government support. A 2021 report by Japan's Ministry of Economy, Trade and Industry projected that Japan's global semiconductor market share could approach zero by 2030. Tokyo has since poured 3.3 trillion yen, about $27 billion, into the sector in a bid to recover competitiveness. Against this backdrop, labor tensions in Korea's semiconductor sector are raising alarm. The labor union at Samsung Electronics is demanding bonuses equivalent to 15 percent of annual operating profit, which is expected to exceed 300 trillion won this year. That would amount to 45 trillion won, modeled after SK hynix, where bonuses reach 10 percent of operating profit, or about 600 million won per employee. A three-week strike beginning on May 21 has been announced, with potential losses estimated at 30 trillion won. Semiconductors account for 23 percent of Korea's total exports and are embedded in major export products such as automobiles, smartphones and home appliances. Up to 80 percent of export items could be affected by disruptions in chip production. The impact on exports and the country's external credibility could be severe. Semiconductor companies must continue investing heavily even during downturns to remain competitive. Expanding a single production line can cost as much as 50 trillion won, requiring firms to take on significant risks. Companies such as Samsung Electronics and SK hynix have become global leaders by enduring such challenges. Complacency, however, can lead to rapid decline, as seen in Intel and Japan. Kim Jung-kwan, minister of trade, industry and resources, has also warned of this risk, emphasizing the need to balance current profits with future competitiveness. Global chipmakers typically prioritize allocating profits to R&D and capital investment. Sa...