Plan Focuses on Foundries, Fabless Firms
The Korean government has decided to provide tax benefits to Samsung Electronics for its massive investment in the foundry business.
The decision goes against the government’s recent trend to reduce tax breaks for R&D and facility investments. This indicates Korea’s urgent need to secure future growth engine items.
Currently, Korea has only four foundry companies – Samsung Electronics, System IC, DB Hitech, and MagnaChip. System IC, which is a subsidiary of SK Hynix, has relocated its factory to China and MagnaChip is not able to invest as it is put up for sale. Therefore, only two companies, Samsung Electronics and DB Hitech, will benefit from the government’s new initiative.
Samsung's foundry investment is estimated at 5 trillion won per year based on the assumption that its foundry investment takes up 30 percent of its annual facility investment, which amounted to 4.5 trillion won in the first quarter of this year. If R&D investment is added to the amount, Samsung Electronics will enjoy at least several hundred billions of won in tax breaks.
The government also came up with measures for mid-sized foundry companies such as DB Hitech. It has allowed smaller foundry companies to benefit from facility investment financing from Korea Development Bank (KDB).
Overall, the government’s plan focuses on strengthening an ecosystem in the non-memory sector. Key initiatives include the formation of Alliance 2.0 between fabless companies and their corporate customers and the establishment of investment funds for the fabless industry. But many semiconductor experts say that the government has to draw up detailed and concrete implementation plans. "Because of the high risk and high return nature of fabless investment, the government’s blueprint will not pay off if it fails to differentiate itself from various funds being already managed by venture capital firms,” said an official in the Korean fabless industry.
Alliance 2.0 is also noticeable. The alliance will consist of 25 members -- the government, fabless companies, and foundry companies. For example, in the automotive sector, fabless companies Nextchip and Telechips and their client Hyundai Mobis joined the alliance. However, some experts are skeptical about how the alliance will benefit the members in the real business world. "There are only 20 fabless companies with more than several hundred billions of won in annual sales," said an executive of a fabless company. "To minimize moral hazards and strengthen a fabless industry ecosystem, the government should ensure that financial support and investments are allocated to fabless companies based on performances."