South Korea seeks to turn AI chip boom into strategic gains

SEOUL: South Korea is moving to use soaring global demand for artificial intelligence hardware to strengthen its semiconductor sector as competition intensifies, particularly with China.

According to AFP, Seoul announced major investments on Monday, including support for new semiconductor plants and AI data centres, led by South Korean chipmakers. Analysts said the current surge in demand for components used in AI systems offers the country an opening to reinforce its position in the global chip industry.

Profits rise as demand surges

Three companies dominate the advanced memory chip market used in AI systems: US-based Micron, and South Korea’s Samsung Electronics and SK hynix. Their earnings and stock prices have climbed sharply as governments and technology firms pour hundreds of billions of dollars into developing and operating AI tools.

Jim Handy, a semiconductor expert at Objective Analysis, said the expansion of AI use has tightened supply and pushed up prices.

“AI has not only provided big demand, it has also created shortages, and that has driven price escalation,” he told AFP.

The increase in memory and storage chip prices is being passed on to consumers, with Apple raising prices for MacBooks and iPads this month. The boom has also fed labour demands in the sector. Samsung avoided a major strike in May after reaching a bonus agreement with its largest union.

Competition with China

South Korea has said it will triple AI spending this year as it seeks to join the United States and China among the leading AI powers. Lian Jye Su, chief analyst at Omdia, said Seoul sees the current period as a rare chance to narrow the gap with rivals, especially China.

Su told AFP that the timing favours South Korea because it can build on its existing strengths while the AI upturn remains strong. “It’s the perfect time,” he said.

He added that South Korea can use its strategic advantage now because the AI surge may not last indefinitely and demand could later weaken.

The Financial Times reported on Saturday that Apple is looking to purchase memory chips from Chinese manufacturer CXMT, which could benefit from supply shortages alongside Taiwanese competitors. AFP said it had sought comment from both Apple and CXMT.

Su said Chinese companies benefit from lower labour costs and strong domestic demand, but added there may be limits to their technological expansion. “People are less keen to… (become) overly reliant,” he said.

He said this is one reason Korean chipmakers such as Samsung are looking to deepen their efforts in the sector.

Innovation and risks

Handy said established Asian chipmakers are well placed to benefit from the AI cycle in part because they have maintained their capacity to innovate. “This gives them profitability that helps to produce a moat between them and smaller firms,” he told AFP.

He said smaller companies are less able to sustain the same levels of spending and research investment.

Su said Monday’s investment plans also reflect an effort by South Korean firms to use their strong cash position to broaden their product range. That, he said, could reduce the risk of becoming too dependent on one fast-growing area such as memory chips, in what economists describe as Dutch disease — the damaging effect of a temporary rise in the price of a single commodity.

Questions over sustainability

The speed of recent gains has also prompted questions about how long the AI rally can continue. According to AFP, Samsung’s share price has jumped more than 430 per cent over the past year, while SK hynix has risen 770pc.

Some analysts, including Su, remain upbeat because AI tools are becoming more deeply embedded in business activity. Handy said memory-chip prices could keep climbing until demand in end markets is affected. “If prices rise too high then markets move to another technology or disappear altogether. We’re not there yet,” he added.