Korea's major chemical companies are promoting the electronic materials business as a new growth engine.
As the manufacturing sector, which mainly produces finished products, is reaching maturity, the importance of competitiveness in the materials industry as the basis of the manufacturing businesses appears to be on the rise.
It is hard to enter the materials market compared to the Business-to-Consumer (B2C) industry, such as the household appliance manufacturing industry, since a large-scale investment is needed. However, once technical skills are obtained, they can greatly boost long-term profits with charging patent royalties.
Accordingly, group subsidiaries engaged in the chemicals business seem to be growing in stature.
According to industry sources on September 1, despite the sluggish economy, key players in the chemical industry are showing signs of recovery in domestic sales thanks to the high performance of the electronic materials business.
LG Chem witnessed 23.7% of its gross operating profits in the field of information and electronic materials. Those profits are attributable to increasing sales of high value-added products including 3D Film Patterned Retarders (FPR), and Indium Tin Oxide (ITO) coating films.
Its information and electronic materials business accounts for only 10.4% of the company's total sales, but its profitability is highest among the three major areas.
The largest Korean chemical company is occupying over 85% of the global FPR market by developing the world's first FPR 3D technology in 2010. Each year, the company increases sales and business profits in the field of LCD glass substrates and ITO films, formerly dominated by Japanese companies, after its success in the development and mass production of those products.
The significance of Cheil Industries is also growing in the Samsung Group as a core subsidiary, as Samsung is actively supporting the electronic materials industry.
In 2004, the electronic materials field made up merely 6.4% of the Samsung affiliate’s total sales. But afterwards, it continued to show steep growth with 8.3% and more than 10% of the company’s overall sales in 2005 and 2006.
In Q2 2013, two-thirds of Cheil’s operating profit came from the electronic materials field. Semiconductor and display-related materials such as organic light-emitting diodes (OLED) and electron transport layers (ETL) were the industry's important driving forces.
Cheil is sharpening its competitive advantage, as witnessed by the recent acquisition and takeover of Novaled AG, a German-based organic light-emitting diode (OLED) company, with Samsung Electronics.
With the opening of Samsung's research institute for electronic materials, the role of Cheil Industries in the Group seems to be growing.
Meanwhile, SK Innovation, the core company of SK Group, began to increase its production of Flexible Copper Clad Laminate (FCCL), the main material for Flexible Printed Circuit Boards (FPCB).
The company is also backing the electronic materials business by establishing a joint partnership with Continental AG, one of the world’s leading manufacturers of auto parts. The deal is intended for the business of secondary cell batteries for electric vehicles.
Finally, Hanwha L&C is reducing its focus on construction materials while boosting the electronic materials business. The company recently started to mass-produce ITO films, one of the core materials for touchscreen panels. Currently, the Hanwha affiliate is increasing the sales volume of electronic materials so that the materials business can represent over 60% of the company’s overall sales.