Summary of the Key Points
South Korean chip giants Samsung Electronics and SK Hynix have seen their profits soar due to a semiconductor supercycle, especially driven by the demand for AI technologies. The United States is demanding a share of the excess profits on the grounds that American companies (such as Microsoft, Nvidia, and Apple) have made significant purchases from them. At the same time, the U.S. is pressuring South Korean companies to build new memory chip factories in the country. South Korean companies are faced with a dilemma: if they comply with the U.S. request to build factories, it will divert investment resources that were intended for their home market (the South Korean government has just launched a semiconductor cluster development plan worth 2000 trillion won); if they do not, they may lose U.S. subsidies or face trade restrictions. Currently, South Korean companies are weighing the pros and cons of investing both domestically and in the United States.
1. Surging Profits for South Korean Companies: Catching the “Golden Age” of Semiconductors + Rising AI Demand
Samsung and SK Hynix have reported impressive earnings recently. Samsung’s profit for the second quarter is estimated at 89.4 trillion won, a year-on-year increase of 756%, while SK Hynix’s profit margin in the first quarter reached a record high of 72%. The reason is simple: the semiconductor industry has entered a “supercycle” with a sudden surge in global demand for chips, particularly those used in AI applications (such as HBM high-speed memory, which is essential for training AI models). Additionally, South Korea’s exports to the U.S. have increased significantly (91.3% in the first half of the year, with semiconductor exports rising by 199.5%), contributing greatly to their outstanding financial results.
2. Why Does the U.S. Want a Share of the Profits?
The U.S. Assistant Secretary for Trade stated, “Our companies have purchased a large amount of your chips, especially memory and HBM products. We deserve a share of the profits since we have played a significant role in your success.” The logic behind this is that if some within South Korea argue that suppliers or the general public should receive a portion of the profits, then as one of the largest buyers, the U.S. also has a claim to it. Moreover, South Korea’s semiconductor exports reached a record level in the first half of the year, with the U.S. market accounting for nearly half of the total sales, highlighting the U.S.’s contribution to these gains.
3. The U.S. Also Pressures South Korean Companies to Build Factories in the U.S.
The U.S. not only wants a share of the profits but also wants South Korean companies to relocate their core manufacturing facilities there. For example, the U.S. Secretary of Commerce mentioned Samsung and SK Hynix during the groundbreaking ceremony for Micron’s new factory, urging them to build DRAM/NAND memory chip factories in the U.S. The reason is that the U.S. is concerned about being too dependent on South Korean chips and wants to enhance the resilience of its own supply chain (in other words, it wants to be self-sufficient and avoid potential supply disruptions). Currently, South Korean companies only have manufacturing and packaging facilities in the U.S.; the U.S. aims to get them to move their core production operations there as well.
4. The Dilemma for South Korean Companies: Stay in Korea or Go to the U.S.?
South Korean companies are in a difficult position:
- Staying in Korea: The South Korean government has invested heavily in the semiconductor industry, aiming to build a global hub for this sector. Building factories in the U.S. would divert funds, manpower, and research resources away from these domestic initiatives.
- Going to the U.S.: If they ignore the U.S. demands, they may miss out on subsidies under the U.S. “Chip Act” (which could amount to billions of dollars) and face tariffs or trade restrictions, potentially losing access to the U.S. market.
Therefore, South Korean companies are balancing these conflicting interests, trying not to offend the U.S. while also protecting their domestic development opportunities.
5. What Will Happen Next? South Korean Companies Need to Negotiate with the U.S.
Experts predict that South Korean companies are unlikely to agree to share profits, but they must be cautious of potential retaliatory measures such as tariffs from the Trump administration. They might opt for a compromise, such as building some factories in the U.S. while retaining their core technologies and research capabilities in Korea. For instance, recent moves by South Korean and American semiconductor companies to establish business entities in the U.S. indicate that they are exploring possible arrangements. In the future, South Korean companies may negotiate terms with the U.S., such as allowing factory construction but not sharing profits or granting access to their core technologies.
In summary, this situation involves the U.S. trying to extract a portion of the benefits generated by South Korean chip companies. South Korean companies need to balance maintaining their profits and market presence, which will likely require ongoing negotiations with the U.S.
(The entire text is explained in plain language to make it understandable even for those outside the financial industry.)