In 2021, South Korea’s exports expanded at their fastest pace in 11 years, with total export value reaching a record high, supported by post-pandemic recoveries in global demand.

The surge in exports was driven in part by petroleum products (up 55.8% YoY) but was also supported by strong demand for semiconductors. The latter represented approximately 20% of South Korea’s exports in 2021, reaching $128 billion.

The chip industry is the spearhead of the South Korean economy, accounting for 6% of GDP in 2018. Two of SK’s largest chip manufacturers, Samsung, and SK Hynix – command about 50% of the memory chip market. Memory chips total nearly 30% of the total semiconductor market and are used to store data and process code.

The chart above provides a clear snapshot of the semiconductor industry in South Korea and, for the most part, encompasses the Global trend as well. Both the volume (red line) of semiconductors sold and total value (blue line) of sales, experienced a strong period of growth until mid-2018. After years of overinvestment and subsequent cuts in capital expenditures for IT projects led to an oversupplied market, prices dropped dramatically, by nearly 48%, as shown by the grey line above. The memory chip market saw revenues decline by 37.5%. The sales at the two South Korean behemoths dropped by 30% each.

Exports, by volume only, rebounded sharply following the restructuring of the market. The outbreak of the pandemic further pushed prices down but the “V” shaped recovery in demand and persistent supply chain problems has led to significant chip shortages across several key industries, hampering growth and stoking inflation.

As supply struggles to meet demand, South Korean chip manufacturers face ever-growing competition. As a result, the Korean government recently unveiled an ambitious $451-billion investment plan in hopes of bolstering their key manufacturing sector. Samsung alone pledged to invest $151 billion through 2030 to expand and diversify into non-memory chip manufacturing.

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