Cutting chip output

Economy should be put on crisis management mode

SK hynix has decided to reduce its production of memory chips. The decision by the world's second-largest semiconductor maker is aimed at weathering the continuous price drops resulting from a supply glut through an output cut. SK will curtail the production of DRAMs from the fourth quarter of this year.

SK had a 25.8 percent of the global DRAM market share in 2018, following Samsung's 43.9 percent and surpassing Micron's 23 percent. SK's operating profit plunged 89 percent to 637.6 billion won ($538.5 million) in the second quarter of this year from the same period in 2018. The company's output cut is the first in 11 years since 2008 when the global semiconductor market froze because of the worldwide financial crisis.

The pre-emptive move is inevitable, but the reduced production is likely to continue for some time. Global IT firms' demand for computer chips is falling, in part due to U.S. sanctions on China's telecom equipment maker Huawei. For Korean companies, there is an additional stumbling block ― Japan's export restrictions on essential materials for the manufacture of semiconductors and display panels.

Industry experts are watching whether Samsung Electronics will follow the example of its smaller competitor. Again, the most significant variable is Japan's export curbs. Samsung may put up with the supply cut for the time being. If a stable supply of critical materials is not ensured, however, a production bottleneck is likely to lead to an output cut.

If that worst-case scenario becomes a reality, it will deal a fatal blow to the Korean economy. Last year, semiconductors accounted for 20.9 percent of the nation's exports and 7.8 percent of its gross domestic product. The collapse of the semiconductor industry will lead to an overall economic setback, starting with a fall in exports, investment and employment and ending with a dive in economic growth.

A crisis is looming for Korea Inc. Businesses have already entered into emergency operation amid the aggravating environment. The government needs to take extraordinary countermeasures. Mid- to long-term measures, such as industrial restructuring, finding new growth engines and localizing essential parts and components, won't do. The government itself should embark on crisis management of the national economy.