Semiconductor gold rush? Not if you're a supplier.

Silence filled most of a factory in Ansan, Gyeonggi, on Wednesday. Only seven employees were seen on duty despite 88 sets of semiconductor testing machines in the chip packaging plant. 

Each machine costs a hefty 800 million won ($546,000) but sits idle for roughly 10 days a month because the company cannot hire enough workers to operate the machines.

"We have plenty of machines, but not enough employees," said Song Young-hwa, the CEO of the factory. "Each worker has to manage two or three machines at a time."

Although the company continues to receive orders from major chipmakers, Song said business conditions are the toughest they have been since the company was founded in 2001. Any gains from higher selling prices were quickly swallowed by surging labor costs, higher interest rates and a sharply weaker won.

"Labor costs have quadrupled, and the exchange rate and oil prices are at record highs, which leaves us with an operating margin of barely 1 percent," Song said. "[When business is booming], I survive on five hours of sleep a night, but [when it isn't], I might work just 10 hours the entire week.”

The situation is similar at FRD, a supplier of specialty gases used in semiconductor manufacturing. The company's operating margin fell from 2.2 percent in 2021 to negative 8.2 percent in 2024, before deteriorating further to negative 48.6 percent in 2025. The sharp decline was driven by soaring costs after the Ukraine war disrupted supplies of rare gases such as helium, xenon and krypton.

Korea's small- and medium-sized enterprises, which have long been regarded as the backbone of the country's manufacturing sector, are coming under mounting pressure as a weaker won and soaring oil prices worsen the business environment.

Once celebrated as Korea's hottest industry for its generous performance incentives, the semiconductor sector is no exception.

A survey conducted by JoongAng Ilbo in cooperation with the Korean Society of Semiconductor & Display Technology on Wednesday found that the average operating margin of 176 listed Korean semiconductor suppliers in the first quarter stood at just 8 percent.

Among 39 semiconductor materials suppliers, average revenue stood at 118.2 billion won and operating profit at 10.8 billion won, which left an operating margin of just 9.1 percent.

The average revenue of 36 semiconductor parts suppliers was 60 billion won, with an operating profit of 9.2 billion won. The average margin rate was only 12.4 percent.

Average operating margins fell further to 7.3 percent for 85 equipment manufacturers and just 3.5 percent for chip design and outsourced semiconductor assembly and test (OSAT) companies.

The contrast with Korea's two dominant memory chipmakers was stark.

Samsung Electronics' semiconductor division posted first-quarter revenue of 81.7 trillion won and operating profit of 53.7 trillion won, which gave it an impressive operating margin of 65.7 percent. Fellow chip giant SK hynix reported revenue of 52.6 trillion won and operating profit of 37.6 trillion won, for an operating margin of 71.5 percent in the same period.

"We're in the same semiconductor industry, but when the conglomerates throw around performance incentives worth trillions of won, that's someone else's story," an industry source who requested anonymity said. "Now our major customers have shifted their focus to overseas investments, and no new orders are coming in."

Investors say the gap reflects Korea's lopsided semiconductor ecosystem, which is overwhelmingly dominated by Samsung Electronics and SK hynix.

Beyond the two memory chipmaker giants, only a few Korean semiconductor companies are globally competitive. The reality underscores the weak competitiveness of the country's upstream suppliers of materials, components and equipment.

Those in the semiconductor industry often complain that the only companies still making money are suppliers to Samsung Electronics and SK hynix.

The low localization rate of semiconductor equipment is another structural challenge.

Memory semiconductors, where Korea remains the global leader, are particularly dependent on manufacturing equipment. Roughly 70 percent of the investment required to build a memory chip fabrication plant goes toward equipment purchases. Even so, only about 20 percent of semiconductor equipment used in Korea is produced domestically. That means a factory built for 100 trillion won would spend about 70 trillion won on equipment, with roughly 56 trillion won flowing to overseas suppliers.

The picture is only slightly better for semiconductor materials. Domestic products account for just 30 percent of the semiconductor materials market.

"Companies can't be expected to use domestic products simply for the sake of using domestic products when their quality falls short," Park Jea-gun, president of the Korean Society of Semiconductor & Display Technology, said. "If we want a more resilient semiconductor supply chain, we need to strengthen these smaller companies from the ground up and give them an environment where they can develop, test and demonstrate their technologies."

The burden of a weak won and high oil prices extends far beyond the semiconductor industry, but it falls most heavily on small and medium-sized businesses. Large corporations typically hedge against currency fluctuations through forward exchange contracts and other risk-management strategies. Many smaller firms, however, have little protection and bear the full impact of exchange-rate swings.

Paper cup manufacturer Kjmax is one such example. Orders have remained steady from last year, yet the company has slipped into the red as surging oil prices and the weakening won have driven up production costs. Prices for raw materials used to line the inside of paper cups, along with the plastic film used to bundle the cups together, have jumped 35 percent since the start of the year because both are petrochemical products.

The cost of pulp, the paper cup's primary raw material, has also climbed more than 20 percent as the value of the won continued to weaken against the dollar.

"We're working just as hard as we always have, but at the end of the day, there's nothing left,” Kim Yang-yeon, the CEO of Kjmax, said. "If orders had dried up, at least we could go out and chase new business. But under the current conditions, it's becoming difficult just to keep the company alive."

Rising costs are only part of the problem. Passing those higher costs on to customers is often even harder.

One manufacturer of beauty devices has seen costs surge as the company imports most of its raw materials from China.

Over the past year, the won has weakened to trade at 230 won against the yuan, from 190 won in 2025.

Even so, when it recently renewed its contract with a global beauty brand, it was forced to keep product prices unchanged from last year.

"Our contracts are signed annually, and unless we've made a major leap in product quality, it's nearly impossible to ask for a price increase just because our costs have gone up," the company's CEO, surnamed Kim, said. "From the client's perspective, they can always replace us with a cheaper supplier."

Experts say the pressures facing small firms are unlikely to ease anytime soon.

"Raw material costs remain high, domestic demand is weak and uncertainty at home and abroad continues to weigh on businesses," said Kim Hee-joong, head of the economic policy division at the Korea Federation of Small and Medium Business (KBIZ). "The government urgently needs to ease the burden on small businesses through tax relief and financial support, while also pursuing policies that boost domestic demand and help companies cope with external volatility."

BY SPECIAL REPORTING TEAM [[email protected]]