South Korea's semiconductor exports are expected to strengthen momentum in the second quarter as execution of a supplementary budget is added to the gains seen in the first quarter, when exports helped lift quarterly GDP growth. The rise in semiconductor export prices is outpacing the pace of recovery in volumes, raising the possibility of a joint rebound in facility investment and domestic demand.

South Korea's first-quarter GDP grew 1.7 percent quarter-on-quarter and 3.6 percent year-on-year, Hana Securities said. The figure far exceeded the market forecast of 0.9 percent growth from the previous quarter and was the highest since the third quarter of 2020. By expenditure item, net exports contributed 1.1 percentage points and facility investment 0.4 percentage points to growth.

Facility investment rose 4.8 percent as investment in semiconductor manufacturing equipment increased, and exports rose 5.1 percent, led by IT products such as semiconductors. The Ministry of Trade, Industry and Energy said March exports rose 48.3 percent from a year earlier to $86.1 billion, surpassing $80 billion for the first time. Semiconductor exports rose 151.4 percent to $32.8 billion, the highest ever on a monthly basis.

That trend is likely to strengthen further in the second quarter as government contributions are added. Government contribution to first-quarter GDP was limited to 0.0 percentage points because the supplementary budget began to be executed from April. Hana Securities estimated the effect of the supplementary budget on raising 2026 growth at 0.208 to 0.288 percentage points, depending on scenarios by execution timing. Under an early execution scenario in which 50 percent is spent in the second quarter, the effect was the largest at 0.288 percentage points. With the government's fiscal effect added to the semiconductor momentum that drove the first quarter, the second quarter would secure a stronger growth engine than the first, it said.

Memory price trends support the budget effect. Ministry data showed the fixed transaction price of DDR4 8Gb rose 863 percent in a year to $13.0 from $1.35, DDR5 16Gb rose 630 percent to $31.0 from $4.25, and NAND 128Gb climbed 605 percent to $17.73 from $2.51. Hana Securities said the daily average value of memory semiconductor exports as of April 20 rose 223 percent from a year earlier to $840 million. DRAM rose 345 percent to $430 million and MCP rose 106 percent to $270 million, it said.

Hana Securities expected earnings upgrades for memory companies' second-quarter and full-year results to continue in the second quarter. It said better-than-expected pricing is being seen, centred on mobile DRAM and eSSD. Hana Securities said, "In this cycle, stock prices will also move in tandem until earnings upgrades are finished," and recommended increasing exposure to memory and materials, parts and equipment suppliers.

◆Structural forces stronger than variables, semiconductors are 'essential infrastructure demand, not a cycle'

There are risks. Hana Securities expected net exports to contribute less as crude oil imports jump if the Strait of Hormuz is reopened. It also said the consecutive declines in South Korean consumer sentiment in March and April after the war could limit the pace of recovery in domestic demand. It also cited the possibility that a recovery in construction investment could be difficult to sustain due to rising raw material prices.

Still, analysis favouring structural change in the semiconductor industry itself as a stronger force than such macro downside variables is dominant. Eugene Investment & Securities said TSMC, on its first-quarter conference call, redefined AI as a multi-year structural change and stressed that semiconductors are shifting to essential infrastructure demand rather than a cycle. Aggressive investment by big tech supports that view, it said.

TSMC presented 2026 capital expenditure guidance of $52 billion to $56 billion, up 40 percent from a year earlier, and the market expects it could expand to as much as $70 billion when factoring in the construction of new CoWoS 7 and 8 plants and additional fab investment. ASML also raised its 2026 annual sales guidance to 38 billion euros from 36.5 billion euros. It said analysis points to demand for equipment for South Korea driving performance, showing that global investment in advanced processes is aligned with a recovery in South Korean facility investment.

The trend of vertical integration by big tech is also a factor strengthening structural demand. Eugene Investment & Securities said Meta signed a mass production contract with Broadcom for its next-generation custom AI chip, MTIA, based on 2-nanometre technology, and presented 2026 CAPEX of up to $135 billion.

Eugene Investment & Securities said, "With the easing of supply chain bottlenecks and aggressive investment by big tech, performance improvements at key semiconductor companies could be prolonged versus the existing frame," and forecast positive momentum to continue in the value chain of materials, parts and equipment suppliers that provide high value-added materials and equipment for advanced processes and next-generation packaging.