South Korea's Strategic Moves to Secure Global Semiconductor Supply Chains

South Korea's semiconductor industry, a linchpin of global technology supply chains, is navigating a high-stakes geopolitical landscape. As the U.S.-China technological rivalry intensifies, South Korea has recalibrated its strategies to balance economic ties with China-its largest trading partner-with alignment to U.S. efforts to secure critical technologies. This recalibration, driven by joint initiatives like the U.S.-ROK Next Generation Critical and Emerging Technologies (CET) Dialogue and multilateral frameworks such as the Minerals Security Partnership, has profound implications for the valuation of industry giants like Samsung and SK Hynix.

Geopolitical Alliances and Strategic Diversification

South Korea's partnership with the U.S. has evolved from military cooperation to a "Global Comprehensive Strategic Alliance," with semiconductors at its core. According to a Korea Economic Institute of America report on cooperation on semiconductor supply chains, joint R&D efforts and supply chain resilience initiatives aim to reduce reliance on China while maintaining access to its markets. This dual strategy is critical: China accounts for 30–40% of SK Hynix's DRAM and NAND production and over a third of Samsung's DRAM output, according to the Manufacturing Economic Times. However, U.S. export controls, such as the revocation of the Validated End-User (VEU) program in September 2025, have introduced operational uncertainty. Shares of Samsung and SK Hynix plummeted by 2.3% and 4.4%, respectively, following the policy shift, as firms now face stringent licensing requirements for U.S.-origin equipment in China.

Government Support and Market Resilience

To counter these pressures, South Korea has launched a $23.25 billion support package, including low-interest loans, infrastructure upgrades, and workforce training programs. This funding, as noted by CNBC, is designed to shield the industry from U.S. tariff threats and reinforce its global leadership in memory chips. The government's intervention has already spurred a modest rebound in investor confidence, with the KPMG outlook scoring 59 for 2025-indicating optimism about revenue and R&D growth. Analysts project the sector will grow at a 7.9% CAGR through 2034, reaching $247.46 billion, driven by investments in AI chips and eco-friendly manufacturing, according to market projections.

Valuation Metrics and Investor Sentiment

The valuation of South Korean semiconductor firms remains sensitive to geopolitical shifts. Price-to-Earnings (P/E) ratios for Samsung and SK Hynix have fluctuated amid supply chain disruptions and U.S. policy uncertainty. A report by Current Market Valuation highlights that P/E ratios are influenced by global demand, operational risks, and macroeconomic conditions. While the sector's Enterprise Value-to-EBIT (EV/EBIT) and Enterprise Value-to-Free Cash Flow (EV/FCF) metrics suggest mixed performance, the government's $470 billion mega semiconductor cluster project-partnering with Samsung and SK Hynix-signals long-term confidence in maintaining market dominance, as discussed in a Springer chapter.

Risks and Future Outlook

Despite these efforts, South Korea faces headwinds. Its system semiconductor market share is projected to decline from 2.3% in 2023 to 1.6% by 2027, outpaced by U.S. and Taiwanese rivals, according to BusinessKorea. Alibaba's development of AI chips and U.S. "friend-shoring" initiatives further complicate the landscape. However, South Korea's focus on technological self-reliance-through public foundries and talent development-positions it to mitigate these risks.

Conclusion

South Korea's semiconductor strategy is a balancing act between geopolitical alignment and economic pragmatism. While U.S. policies have introduced short-term volatility, the government's aggressive support measures and long-term investments in AI and sustainability are likely to stabilize valuations. For investors, the sector offers growth potential but requires close monitoring of U.S.-China dynamics and South Korea's ability to innovate amid rising competition.