S. Korean chip companies fall behind U.S., Japanese counterparts

Samsung Electronics’ 8Gb DDR4 DRAM. [Courtesy of Samsung Electronics]

Amid a worldwide economic downturn, the performance of major companies in South Korea, the United States, and Japan exhibited significant differences. South Korean semiconductor companies, primarily focused on memory chips, showed lackluster performance in both revenue and profits, while automotive and biotechnology companies were relatively resilient during the first half of this year, according to a recent report.

The Korea Enterprises Federation (KEF) report, released on Sunday, analyzed the performance of 44 companies from eight sectors, including semiconductors, steel, automotive, retail, pharmaceuticals and biotechnology, oil refining, telecommunications, and internet services, across South Korea (16 companies), the U.S. s (16), and Japan (12).

According to the report, the average revenue growth rate for Samsung Electronics and SK hynix in the first six months of 2023 was -36.2 percent compared to a year ago. The average operating profit margin was -24.8 percent. In contrast, leading American chip companies, such as Intel and Qualcomm, reported average revenue growth rates of -23.3 percent and an operating profit margin of 6 percent. Experts attribute the weaker performance of South Korean semiconductor companies compared to their American counterparts to the Korean semiconductor industry’s overreliance on memory chips.

Memory chip demand typically involves companies placing duplicate orders for required quantities with multiple manufacturers, then canceling orders based on market conditions. This approach, different from the non-memory industry that relies on customized orders with confirmed contracts, means memory chip manufacturers are more vulnerable during economic downturns.

Memory chip prices have been consistently declining since 2022. According to DRAMeXchange, the average fixed transaction price of general-purpose DDR4 DRAMs for PCs in August was $1.30, which is 2.99 percent lower than the previous month and less than half compared to August 2022 ($2.85). The fixed transaction price slumped into the $1 range for the first time in January this year and has been on a downward trend since. While the industry is implementing continuous supply cuts to address the fall in prices, the speed of the global economic recovery remains uncertain.

On the other hand, system semiconductors are thriving despite the economic downturn. The recent surge in demand for AI, particularly with the advent of generative AI technologies such as ChatGPT, has greatly benefited system semiconductor companies, in turn widening the performance gap between memory chip companies and system chip companies. With the emergence of AI that can be practically used by the public, the demand for graphics processing units (GPUs), essential for AI development and operation, has skyrocketed. According to Global Market Insights, the GPU market, which was worth $40 billion in 2022, is expected to hit $400 billion by 2032 with an annual growth rate of 25 percent.

The leading player, U.S.-based Nvidia, recorded sales of $13.51 billion in May to July, a remarkable 101 percent increase compared to a year earlier.

SK hynix headquarters in Icheon, Gyeonggi Province. [Photo by Yonhap]

In contrast, SK hynix, the second largest memory chip manufacturer globally, incurred a loss of nearly 3 trillion won in the second quarter alone. On a consolidated basis, the Korean company reported an operating loss of 2.88 trillion won in the second quarter of this year. The first-half revenue growth rate for SK hynix was -52.3 percent, which was lower than Samsung Electronics’ -20.2 percent, Intel’s -26.8 percent, and Qualcomm’s -19.8 percent.

Companies in South Korea’s automotive industry, including Hyundai Motor and Kia, displayed relatively robust performance compared to those in the U.S., such as Ford and General Motors, and Japan’s Toyota and Honda. In the first half of 2023, Hyundai and Kia achieved an average revenue growth rate of 22.4 percent and an operating profit margin of 11.2 percent. In contrast, companies in the U.S. and Japan reported revenue growth rates of 16.9 percent and 19.4 percent, with operating profit growth rates of 5.8 percent and 6.8 percent, respectively.

The average revenue growth rate and operating profit margin for major pharmaceutical and biotechnology companies in South Korea (Samsung Biologics and Celltrion) were higher at 18.0 percent and 30.3 percent, respectively, compared to the U.S. (-18 percent, 19.8 percent) and Japan (7.8 percent, 6.2 percent). U.S. companies on the comparison list include Johnson & Johnson and Pfizer, while Japanese companies include Takeda Pharmaceutical and Astellas Pharma.

In the steel sector, Japanese companies outperformed their counterparts. The revenue growth rates in the first half were 11.3 percent for Nippon Steel and 4.0 percent for JFE Holdings, which were higher compared to POSCO Holdings (-10.9 percent), Hyundai Steel (-5.8 percent), U.S. Steel (-17.8 percent), and Nucor Corporation (-18.2 percent).

In the petroleum refining sector, only South Korra’s SK innovation (4.7 percent) and Japan’s Eneos Holdings (0.8 percent) reported revenue growth. In contrast, GS Caltex (-17.3 percent), ExxonMobil (-17.8 percent), Chevron (-19.0 percent), and Idemitsu Kosan (-4.2 percent) all reported declining revenue growth.