Back in 2003, we heard the mantra of "Two Trillion" echoing from Taiwan's high-tech corridors. "Two Trillion" referred to the semiconductor and display industries, both of which expected to reach shipment value of NT$1 trillion by 2006.

Interestingly, South Korea, Taiwan's Asian nemesis in the electronics marketplace, had somewhat similar goals. IC industry observers in South Korea, however, acknowledge Taiwan's clear lead in the SoC design arena.

They contend, though, that the real competition in the IC design market is U.S. companies—thus, they consider Taiwan more of a partner and less of a competitor. Semiconductor firms in Taiwan have long been selling chips to system houses in South Korea.

The real stunner came this year when iSuppli president and CEO Derek Lidow told his audience at the Seoul Digital Forum 2006 that Taiwan has captured the No. 1 slot in LCD panels, a market in which South Korea has been a leader. Taiwan moved into the top spot with a 52.2 percent share of shipments as against South Korea's 37.4 percent.

And South Korean companies seem to be giving way on the system side as well, where mobile phone makers like Nokia and Motorola are getting their act together, somehow neutralizing the gains of Korean makers like Samsung and LG in the global handset market.

Make no mistake—innovation is happening in South Korea, albeit in the hallways of the usual places. Samsung, which employs more than 130,000 workers and accounts for a fifth of South Korean exports, is on top of the innovation value chain.

Samsung's electronics arm continues to make strides in both system and chip frontiers. The firm recently developed a single-chip LCD panel that reduces the surface area of the drive circuit and the number of components by one-third compared with its existing panel designs. The device incorporates the gate-drive IC function directly on the surface of the glass panel while integrating the time controller within the driver IC.

Hynix, meanwhile, staged a remarkable comeback on the DRAM front, and is now making inroads into flash memory markets. Its non-memory offshoot, MagnaChip, is venturing into growing segments such as display drivers and image sensors.

But Korea's reliance on big names could cut both ways. What we have beyond Samsung and Hynix envy is a setting made up of small design houses that are fighting for identity and a good business model. There are a few success stories as well.

The debate on the concentration of economic power among a handful of family-controlled conglomerates or chaebol, which heated up after the Asian financial crisis in 1997, is becoming louder in the Korean press.

While government is more cognizant of the strategic importance of industries such as SoCs—there is a greater flow of venture capital available to upstarts—what is required is a new design momentum that comes from innovation on the part of small- and medium-sized firms.

South Korea has one of the most mature electronics design industries in Asia, and its tech markets have been thirsting for a rebound for quite some time now. South Korean officials have time and again blamed the situation on the investment frenzy in mainland China, but they miss the point.

As Taiwan's example shows, the contribution of small and medium-sized outfits is vital to the health of the high-tech industry. Now is the time to make that big push with a renewed focus on innovation through private investment funds and industrial incentives.

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