Profit Competition
SK Hynix is gaining ground in the semiconductor industry, recording a business profit rate higher than the Samsung Electronics’ semiconductor business department.
On October 29, SK Hynix announced it reached 4.84 trillion won (US$) in Q3 sales and 1.164 trillion (US$) in business profits. Its business profit rate is around 29%, 1% higher than the previous quarter’s 28%.
With this, SK Hynix has accomplished over a trillion won in business profits for two consecutive quarters, and is outrunning its competitor Samsung Electronics in business profit rates.
SK Hynix has been seeing a continuous increase in its business profit after being acquired by the SK Group. Its business profit rate of -11% from Q1 last year turned to 0.2% in Q2. The rate dropped back to -1% in Q3, but soon turned to 2% in the following quarter, making SK Hynix a blue chip stock.
Since then, SK Hynix has been continuing to make excellent progress, reaching a business profit rate of 11% in Q1 this year, 28% in Q2, and 29% in Q3. In other words, its business profit increased over 1.1 trillion won (US$) in just one year.
On the other hand, Samsung Electronics’ semiconductor business department is still in the black, but its business profit rate has entered a stationary state since Q2 this year.
Samsung’s business profit rate for Q1 last year was 8.8%, which increased to 14.8% by Q4 the same year. However, in Q1 this year, it dropped to 12.5%, only 1.5% higher than SK Hynix’s. In Q2, Samsung pulled up its rate to 20.3%, but it was 8% behind SK Hynix’s doubled rate.
Samsung Electronics’ semiconductor business department grew a mere 0.8% in Q3. The cause behind the business profit rate gap between Samsung and SK Hynix seems to be their main businesses.
Samsung Electronics focuses on memory semiconductors such as D-RAM, NAND flash, and system LSI based on application processors (AP). In the memory market, Samsung continues to remain in first place, making steady profit. However, in the AP market, it comes in fifth place. Samsung lacks market hold and is making almost no profits. In other words, Samsung is losing the profit from memory in its AP business.
Samsung is relying on internal businesses for its major supplier. The biggest client for the Exynos AP produced by Samsung Electronics’ semiconductor business department is Samsung Electronics Information Mobile (IM) business department.
Also, the industry analyzed that Samsung Electronics’ mobile business department does not have a “one chip” product combining its AP to a communication module, so it is becoming even less competitive than Qualcomm.
A Samsung Electronics associate said, “It is not reasonable to compare the business profit rates of Samsung Electronics’ semiconductor business department and SK Hynix, since the two have a different product mix,” but added, “It is necessary for the system LSI business department to make improvements to its revenue to increase its competitiveness in the whole semiconductor industry.”
SK Hynix concentrates on memory, which tends to have a higher marginal rate. In fact, D-RAM for PC sales makes up 30% of total sales. On the other hand, system LSI takes up less than 1%.
SK Hynix plans on increasing the mobile D-RAM production in demand for smartphones and tablet PCs to enforce its competitiveness in the memory field.
At the conference call for the Q3 performance announcement on that day, SK Hynix Corporate Center Director Kim Joon-ho said, “The weight of mobile products reached 20% of the entire D-RAM production in Q2, and mid-20% in Q3,” adding, “It is expected to break the 30% level in Q4 and 40% by next year.”