You can make a lot of money in the boom cycle. With the stockpiled cash, you can then hope to ride out the bust cycle, waiting for the next boom cycle. The cycle alternates between the two and in this business timing determines everything. In the boom cycle the price of the product is high, but when the market turns around, the price then plummets, many times becoming one-tenth of the original price. The weak or the unlucky go out of business in the interim and the survivors stand to reap tremendous profits when the next wave comes. The survivors then start another round of competition. Through this global game of chicken, only five companies are supplying the ever-growing global demand. The venue for this cutthroat competition is the global semiconductor industry.

There are two types of memory chips on the market: those used for PCs and laptops (called DRAM), and those for smartphones and digital gadgets (called NAND Flash). The former market is supplied by Samsung (Korea), Hynix (Korea), Micron (U.S.) and Nanya (Taiwan) in the order of market share. Demand in the latter market is met by Samsung, Toshiba (Japan), Micron and Hynix. So, the five companies produce virtually all the chips that go into everything digital. And in this market the performance of the two Korean chipmakers has been particularly strong recently. According to recent industry surveys, the combined market share of the two companies in the DRAM market has exceeded 70 percent for the first time. The number for the NAND Flash market has reached 40 percent and is rising.

Samsung has been the dominant player in the semiconductor market for a long time, and is now further distancing itself from the pack. What really changed the dynamics of the industry was the recent upward surge of another Korean chipmaker, SK Hynix. In 2014, the company registered record-high profits of 5 trillion won, solidifying the second place in the global market after Samsung.

Perhaps the term “sea change” can describe the fate of Hynix. The company almost faced bankruptcy after the 1998 Asian financial crisis and the continuing bust cycle of the global semiconductor industry. The share price for the company nosedived to a meager 136 won at the lowest point (compare this to today’s 47,600 won).

Knowing the company’s technological potential and the cyclical nature of the semiconductor market, creditor banks agreed upon debt restructurings in 2001 and 2002 instead of liquidation. During the next decade of global competition, the company managed to survive while better-positioned competitors left the market one by one. Among the dozens of Korean companies that went through similar debt restructuring processes after the financial crisis, Hynix has been one of the most successful.

The revival of the company is living proof that it is technological edge and timely investment that count at the end of the day in the fierce competition of the global market. While it was the creditors who decided to keep the chip manufacturer as a “going concern,” it was the technological innovation through wise investment that enabled the company to survive in the global competition.

One may also realize the importance of sound domestic competition between well-meaning rivals, which has obviously facilitated their collective strong performance in the global market as well. Now, the competition in this winner-takes-all market is getting fiercer as, finally, China has just rolled up its sleeves, opened its wallet and is putting its own horse in the race. The next round is shaping up, with more at stake.

By Lee Jae-min

Lee Jae-min is an associate professor of law at Seoul National University. ― Ed.