Strong demand for components that power artificial intelligence presents South Korea with an opportunity to bolster its chip industry against rivals such as China, analysts say.
Seoul announced massive investments on Monday, including for new semiconductor factories and AI data centers, led by South Korean chipmakers.
AFP looks at what has fueled South Korea’s AI boom and where it might be headed:
– High profits –
Three companies dominate the global market for making advanced memory chips that help power AI systems: US giant Micron and Samsung Electronics and South Korea’s SK hynix.
Their profits and stock prices have soared to dizzying heights as governments and tech companies shell out hundreds of billions of dollars for training and using AI tools.
“AI has not only provided huge demand, it has also created shortages and that has fueled price escalation,” Jim Handy, semiconductor expert at Objective Analysis, told AFP.
Spiraling prices for memory and storage chips are being passed on to consumers – with Apple this month raising the cost of MacBooks and iPads.
The boom has also fueled workers’ demands for pay packages, with Samsung avoiding a major strike in May by agreeing a deal on bonuses with its biggest unions.
– Chinese competition –
South Korea has pledged to triple its AI spending this year, aiming to join the United States and China as one of the world’s biggest AI powers.
With China especially racing to develop its technology industry, Seoul sees the boom period as a “one-time opportunity” to close the gap, said Lian Jye Su, a senior analyst at Omdia.
“It’s the perfect time” for South Korea to use its strategic advantage and make investments as “the AI boom may die down” and demand may be reduced, he told AFP.
The Financial Times reported on Saturday that Apple is looking to buy memory chips from Chinese maker CXMT – a company poised to take advantage of shortages, along with Taiwanese rivals. AFP has reached out to Apple and CXMT for comment.
Although Chinese firms benefit from lower labor costs and strong domestic demand, there may be limits to the country’s technology growth, Su said.
“People are less likely to … (become) overly dependent” on Chinese silicon, a factor that Korean vendors like Samsung now want to “double down on.”
– Innovation Imperative –
Established Asian chipmakers stand to benefit from the AI boom, in part because they remain innovative, Handy said.
“It gives them leverage that helps create a gap between them and smaller firms,” which can’t sustain the same level of research spending and investment, he said.
With Monday’s announcements, South Korean chipmakers want to use their current abundant cash to help diversify their offerings, Su added.
That could help them avoid becoming too dependent on the current hot sector — memory chips — in what economists call a “Dutch disease,” referring to the negative effect of a temporary spike in the price of a commodity.
– Boom or bubble? –
The leading speed of growth in the sector – Samsung’s share price has risen more than 430 percent over the past year, with SK hynix up 770 percent – has raised concerns about how long the AI boom can last.
Some analysts like Su are optimistic that demand will remain buoyant, given the deeper integration of AI tools into business operations.
For memory chips, “there’s little to stop prices from going up until they affect the end markets,” Handy said.
“If prices go up too much, then markets switch to another technology or disappear altogether,” he explained.
“We’re not there yet.”
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