Samsung and SK hynix risk stacks up as China’s chip suppliers close in on Korea

Chinese state-backed semiconductor materials, parts and equipment makers are catching up to their Korean counterparts faster than expected, threatening not only Samsung Electronics and SK hynix but the smaller suppliers that feed into their supply chains, according to the chip industry on Tuesday. 

“It's unsettling. We have to compete with the world's top companies, but we are not even in the same weight class to begin with, and China is catching up fast, too,” said a representative of one such Korean supplier who requested anonymity.

Backed by state support, Chinese companies are using the mass production experience they have built up in their own domestic market. In response, calls are growing in Korea for the government to move quickly and deliver tangible support to the industry — such as joint research and demonstration projects among semiconductor companies and stronger efforts to secure talent.

A key reason Chinese suppliers are growing so quickly is that China's abundant domestic chipmaking capacity gives them a fertile proving ground. At the same time, the government buys them time to work through trial and error.

Strong cooperation between China's government and its chipmakers means each new fab gives local producers of chip-related products and equipment — such as etching equipment maker Advanced Micro-Fabrication Equipment China — another chance to build up a mass production track record. Yangtze Memory Technologies' third fab in Wuhan, set to come online by the end of this year, is one such factory.

“Chinese suppliers didn't grow because their technology is overwhelmingly advanced — it's because their domestic factories gave them chances to prove themselves,” said Park Jae-geun, a professor at Hanyang University's Department of Semiconductor Engineering. “Korea also needs to increase research and development (R&D) support and move faster to build testbeds.”

Strategic funding is also notable. In 2024, China set up the third phase of its “Big Fund,” a state semiconductor investment fund worth 344 billion yuan, or about $51 billion. While the fund's earlier phases focused on chip manufacturing facilities, the third phase is known to have widened its scope to include manufacturing equipment and other areas where China remains heavily reliant on imports.

“China has built considerable competitiveness even in general-purpose wafers and semiconductor materials,” said Jeong Hyung-gon, a senior research fellow at the Korea Institute for International Economic Policy. “The structure inside China is shifting toward self-sufficiency, from materials, parts and equipment all the way through chip production.”

A spokesperson at a Korean equipment maker put it more starkly: “Until now, the risk was not being able to sell to China. Going forward, the risk is that China won't need to buy Korean products,” adding, “If we're not careful, Korean companies could be left with no market to return to.”

Korean suppliers are developing their own technology in areas such as deposition and etching, but they lack a shared foundation for jointly researching next-generation processes.

The bigger hurdle is the jump from technology development to mass production: Even after spending on R&D to build the technology and the product, companies often cannot afford the expensive equipment needed to test performance on their own, and delays in verification can push back when they see a return on their investment.

Korea's answer to that gap is under construction in Yongin. SK hynix, with support from the government and local authorities, is building a “Trinity Fab” at its semiconductor cluster in Yongin at 860 billion won ($635 million) — a shared mini fab where materials, parts and equipment makers can test their products' mass production performance instead of having to build that costly equipment on their own. Starting in 2027, suppliers will be able to test products they have developed at the roughly 3,300-square-meter (35,520-square-foot) mini fab, though the range of processes it can support will be limited, largely because suppliers still need a steady, affordable supply of wafers to run tests on.

“Without wafers, you can't do R&D,” said Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association. “The government needs to supply wafers for R&D and make it affordable to test even advanced processes and advanced packaging.”

“Even with a test bed in place, the cost of testing, evaluation and analysis is a significant burden for small- and mid-sized materials, parts and equipment companies,” said Lee Ki-jung, CEO of Trinity Fab. “If the government sets up a voucher system to lower the barrier to entry for demonstration infrastructure and expands access to companies that didn't receive R&D support, it would help get testbeds up and running.

“China's policy of buying its own equipment first is shrinking the footing of Korean companies in the general-purpose equipment market. Korea ultimately needs to widen opportunities for demonstration so it can secure technology with an unrivaled lead.”

The industry's demands breakdown into three main asks: building a foundation for joint research, strengthening protection and development of proprietary technology and expanding support for skilled personnel. There are calls for the government to take the lead in building what some call a “Korean Imec” — a body where competing companies, chipmakers and research institutions would jointly develop and verify core technology.

Imec is an industry-academia collaboration model in which companies, universities and research institutes have jointly verified next-generation process and nanoelectronics technology since the Belgian government helped establish it in 1984.

Through Imec, Belgium built a structure in which competitors kept competing on products while jointly verifying high-risk core technology. Companies that were initially reluctant to collaborate eventually came together once the government set the stage, laying the foundation for today's semiconductor capabilities in both Belgium and the wider region. That is why some in Korea's materials, parts and equipment industry are calling for similar government-led joint research infrastructure.

“Support will only show results if it connects everything into a single policy chain — core technology R&D, demonstration and certification, first purchases, mass production, scaling up and securing global customers,” Jeong said.

Securing overseas customers is another area where the government could help. Expanding opportunities to verify performance at overseas production facilities and supporting local certification and technical cooperation would help Korean companies diversify their customer base. Insiders also say support should be measured not just by the number of research projects funded but by whether that support translates into mass production adoption and overseas sales.

“If Korea's materials, parts and equipment sector weakens, Samsung Electronics and SK hynix will become more dependent on foreign suppliers, which could raise supply chain risks and procurement costs,” Prof. Park said. “If we fail to build an ecosystem that develops new technology and products and achieves globally competitive capabilities, we will have no choice but to fall further behind in the competition.

“Supporting materials, parts and equipment companies should be treated as a policy to protect Korea's manufacturing competitiveness in semiconductors, not just a way to help individual partner companies.”

BY KIM IN-KYOUNG [[email protected]]