SEOUL – If your country boasts world-class players in chips and cars, why not push them into bed together and dominate the automotive semiconductor sector across the globe?
After all, demand for automotive semiconductors has never been higher – and that demand is expected to surge further as cars become more tech-driven. Yet production lags, hence the widely reported worldwide chip shortage which has impacted carmakers across the globe.
Clearly, there is money to be made.
Manufacturing powerhouse South Korea boasts world-class champions in both the automotive and memory chip sectors. What, then, could be simpler than having the auto giant and the chip giant team up to dominate the automotive semiconductor field?
This is the question Seoul is asking, as it makes clear its hopes for Samsung Electronics and Hyundai Motor Group to join forces to create a domestic automotive chip supply chain.
Cars are increasingly becoming “smartphones on wheels.” Notably, self-driving cars – the current holy grail of the industry – will demand more and better semiconductors. Experts predict that thousands of chips will be used in the car of 2030. At present, most vehicles contain 200 to 300.
However, for reasons of past history and current core competencies, neither Hyundai nor Samsung is more than lukewarm on the government’s grandiose plan.
And supply chains – even those in the same nation – are complex. Any such move would require massive re-jigging and new organization in the local chipscape which, despite being the world leader in memory and a rising player in non-memory, is a virtual non-player in auto chips.
This is why South Korean car markers source more than 95% of their chips from overseas. And this is why Hyundai, despite being based in chipland, has suffered from shortages as much as its overseas rivals.
Seoul pushes two toward the altar
Amid the ongoing global shortage of automotive chips, Seoul – historically the main architect of the South Korean industrial landscape – hopes Hyundai Motor will team up with Samsung Electronics.
Earlier this year, amid the hoopla of a visit to a key Samsung fab by President Moon Jae-in, accompanied by a high-powered political entourage including a future presidential hopeful, the government announced ambitious plans to support the industry in building a local ecosystem for automotive semiconductors.
But the days when powerful, authoritarian governments in Seoul controlled capital access and assigned companies their investment destinations are long past. South Korea is a full democracy and its world-beating industrial giants don’t rely on Seoul for cash, don’t need government incentives and can resist coercion.
Neither company has exactly embraced the government plan with open arms. Samsung and Hyundai dutifully signed a memorandum of understanding with state-run research centers and related organizations, promising to work together to create the promised ecosystem for automotive semiconductors.
But while MOUs are widely trumpeted in the political sphere, in the commercial sphere, they are vague documents and – in South Korea, especially – are far from binding.
Bureaucrats are in blah-blah mode.
“First of all, the two companies need to understand each other’s needs,” an official from the Ministry of Trade, Industry and Energy told Asia Times. “In principle, they have signed an MOU for cooperation, and we need to continue to discuss and create concrete cooperation measures.”
Kim Yang-paeing, a researcher of the Korea Institute for Industrial Economics & Trade, highlights one issue holding back a full-fledged joint approach. Despite long-term hopes that Samsung and Hyundai would cooperate to produce automotive semiconductors, “it never happened due to their rivalry,” Kim said.
As groups, the two were long-time rivals for the title of top South Korean company – and were also rivals in core sectors.
Hyundai Group’s Chung family owned Hyundai Electronics, while Samsung Group’s Lee family came late to autos, founding Samsung Motors, which Hyundai and other South Korean carmakers strongly criticized on the grounds of an oversupply of cars.
In the traumatic upheaval of the 1997-98 financial crisis, Seoul forced local conglomerates to sell various non-core assets in a series of state-manufactured “big deals.” The aim was to force the massively leveraged “chips-to-ships” giants to slim down and refocus on their core competencies.
The deals significantly shifted South Korea’s industrial landscape. Its two leading players took heavy hits.
The Chungs’ semiconductor arm was sold off, eventually being absorbed into current memory chip giant SK hynix. The Lees were forced to get rid of their auto arm, which was bought by Renault to become Renault Samsung Motors, with the Korean company abandoning all managerial rights.
Of course, this is all in the past. Today, both companies, having shed significant fat, are fitter than ever and firmly focused on core sectors: electronics for Samsung, autos for Hyundai.
Researcher Kim speculated that this year’s automotive semiconductor turmoil might create an opportunity for cooperation between the two companies in the future.
Or not. Industry experts say that not only has there been no progress on discussions of cooperation, few expect Hyundai even to use Samsung Electronics’ foundry facilities.
Hyundai mulls in-house chip capability
“We are considering various strategies to secure a chip supply chain, but the direction has yet to be decided,” an official from Hyundai Mobis said last week in a telephone conversation with Asia Times. “But the direction has yet to be decided.”
Hyundai Mobis is a key affiliate of Hyundai Motor Group that supplies a broad range of parts including semiconductors to the group’s two carmakers, Hyundai and Kia. Hyundai Mobis oversees the total management of chip supply, including verification of design undertaken by fabless companies, chip purchases and quality control.
However, Hyundai lacks in-house chip capacity. It has no manufacturing capability and apparent limits on its design capability.
Late last year, in an intra-Hyundai deal, Mobis acquired Hyundai Autron from their joint mother group. Hyundai Autron was established in 2012 to design semiconductors for cars, but its capabilities in this field are believed to be limited. Since its acquisition by Mobis, Autron has beefed up, with the new owner injecting more capital and R&D capacity.
“It has been a long time since Hyundai Autron was set up, and they have the manpower, so I believe it has automotive chip design capabilities,” said one industry expert.
Hyundai Mobis confirmed to Asia Times that Hyundai Autron is successfully designing some auto chips. Yet questions still hang over the extent of those capabilities.
Amid these lingering doubts, domestic media have raised the possibility that Hyundai Motor Group will take over another chip design company. Hyundai declined to comment.
Why Hyundai does not buy Samsung
At present, South Korean carmakers rely almost entirely upon imports for their automotive chips.
According to a report from the Korea Automotive Technology Institute, South Korean carmakers rely on foreign chipmakers for a massive 98% of supply. Vendors include NPX of the Netherlands, Infineon of Germany and Texas Instruments of the United States.
Despite South Korea’s impressive global lead in memory and rising role in foundry for non-memory chips, there is no domestic supply chain for auto chips.
Chips for vehicles are produced from 8-inch wafer (200mm) production lines, which are used to make semiconductors with low added value. Although Samsung Electronics does operate a number of 8-inch wafer production lines, it focuses on 12-inch (300mm) wafer lines.
These 12-inch lines, with higher production costs, are used to produce high value-added chips such as the application processers, or APs, which serve as smartphones’ brains.
However, South Korean fabless semiconductor company Telechips recently developed the first domestically designed MCU for vehicles. An MCU is a system semiconductor employed in most electronics products that acts like a microcomputer that operates within a limited range.
Telechips consigned its manufacturing to a Samsung fab, proving that Samsung’s 8-inch foundry lines can be used for auto chips.
But South Korean automotive semiconductors will not be replacing imported products any time soon. “To make a new product, we need three years just for certification,” said one expert.
This suggests that the localization of automotive chips being promoted by the government is not aimed at easing the current shortages. Instead, it is a longer-term punt aimed at future vehicles.
Yet even those chips will not require the top-end facilities that are Samsung’s pride, joy and core competency.
Why Samsung does not sell to Hyundai
“Samsung Electronics’ foundry division has state-of-the-art facilities, but the production of automotive chips does not require that type of production process,” said Kim Sun-woo, an analyst at Meritz Securities. “Even production lines for chips needed for autonomous driving do not need that type of production line.”
He added that semiconductors for future cars fall somewhere between current low-end current automotive semiconductors and higher-performance mobile phone APs.
Therefore, Hyundai – assuming it incubates internal chip design capabilities – would not necessarily need to consign production to Samsung. Instead, it could team up with smaller South Korean foundry firms which own 8-inch wafer production lines, such as DB HiTek and Key Foundry.
Samsung announced in May that it would be investing a monster 171 trillion won ($151 billion) by 2030 to nurture its system chip business – which includes foundries that produce chips designed by other firms.
But although it is a leading integrated device manufacturer that performs all stages of semiconductor production – from design to manufacturing, testing and packaging – Samsung lacks experience in auto semiconductors.
“Even for Samsung, they will be difficult to produce,” one industry player said. “And automakers will not readily change their products from existing companies which have proven track records of reliability and durability.”
Kim of Meritz agreed, saying it would take considerable time for Samsung to move into the automotive semiconductor business on any meaningful scale.
These harsh facts have raised local expectations that Samsung may acquire an automotive semiconductor manufacturer. But those expectations are only rumors.
Meanwhile, the opportunity window is closing, as current players gear up to overcome the ongoing shortage of auto chips. Taiwanese chip-making giant TSMC plans to increase its production of automotive semiconductors by 60% compared with last year. And other foundry companies are following suit.
“The issue of lack of supply of semiconductors is expected to gradually stabilize starting from June,” said Kim Joon-sung, an automobile analyst who is also at Meritz Securities.
“When we checked the current situation of production disruptions by major automakers, we found that most of the production disruptions will be resolved in May, except for Ford in North America, and its production looks normalized after June,” he said.