Strong global demand for components that enable artificial intelligence offers South Korea a chance to strengthen its semiconductor sector amid competition from nations like China, according to analysts. On Monday, Seoul unveiled large-scale funding for new chip production facilities and AI data centers, with major local manufacturers taking the lead. Three firms control most of the worldwide supply of advanced memory chips used in AI systems: Micron from the United States along with Samsung Electronics and SK hynix from South Korea. Their earnings and stock values have climbed sharply as governments and technology firms invest hundreds of billions of dollars to develop and operate AI systems. The surge in AI has boosted demand while also creating supply constraints that have pushed prices higher, semiconductor analyst Jim Handy of Objective Analysis told AFP. Rising costs for memory and storage chips are being passed along to buyers, as seen in Apple’s recent price increases for MacBooks and iPads. The expansion has also prompted employee calls for better compensation, leading Samsung to reach a bonus agreement with its main union in May to prevent a large-scale walkout. South Korea plans to triple its AI spending this year in an effort to rank alongside the United States and China among leading AI nations. With China advancing its technology sector rapidly, Seoul views the current period as a unique window to narrow the difference, said Omdia chief analyst Lian Jye Su. It is an ideal moment for South Korea to use its position and commit resources before the AI expansion slows and demand potentially declines, he noted. The Financial Times reported that Apple is considering purchases of memory chips from China’s CXMT, a firm that stands to gain from shortages along with Taiwanese competitors. AFP contacted Apple and CXMT for statements. Although Chinese manufacturers enjoy lower labor expenses and strong local demand, limits on further growth may exist, Su observed. Concerns about excessive dependence on Chinese components have grown, giving Korean suppliers such as Samsung an opening to reinforce their position. Leading Asian chip producers can benefit from the AI expansion because they continue to innovate, Handy said. This profitability creates a barrier that smaller companies struggle to match due to lower spending on research. Through the Monday announcements, South Korean chipmakers intend to use their current strong cash positions to broaden their product lines, Su added. This approach aims to reduce reliance on memory chips alone and avoid the risks of over-dependence on one sector during a temporary price surge. The rapid rise in the industry, with Samsung shares up over 430 percent and SK hynix shares up 770 percent in the past year, has prompted questions about the duration of the AI expansion. Some analysts including Su remain positive that demand will hold steady as AI tools become more embedded in business processes. For memory chips, price increases are likely to continue until they affect final markets, Handy said. If costs climb too far, markets may shift to other technologies or shrink, though that point has not yet arrived.
