Semiconductor Businesses Account for 40% of Total Profits Made by Korea’s Top 100 Firms

About 40 percent of the operating profits earned by the nation’s top 100 companies this year has come from the semiconductor business divisions of Samsung Electronics Co. and SK Hynix Inc. As memory chip prices have begun to show a downturn, concerns are growing over the slowdown of the country’s entire economy.

According to related industry sources and corporate evaluation company CEO Score on Oct. 14, Samsung Electronics’ semiconductor business division and SK Hynix accounted for 40.2 percent of the total operating profits made by the top 100 firms in terms of market cap as of the first half of this year.

The total operating profits from the top 100 companies amounted to 82.28 trillion won (US$72.62 billion) in the first half of the year. Samsung Electronics’ semiconductor division earned 23.16 trillion won (US$20.44 billion) in operating profit during this period, while SK Hynix posted 9.94 trillion won (US$8.77 billion).

The two companies showed a rapid improvement in performance in the past two years. The two companies’ share of the aggregate operating profits of the top 100 firms had been maintained at the 15 percent to 20 percent level between 2013 and 2016. But it soared to 34.3 percent last year and over 40 percent this year. This was largely due to a spike in memory chip prices caused by growing demand.

According to market research firm DRAMeXchange, the price of DRAM reference products showed a whopping 179 percent increase at the end of last month compared to the end of June 2016. The price of NAND flash chips also grew 41 percent over the same period. Accordingly, Samsung Electronics and SK Hynix, which took up nearly 75 percent of the global DRAM market, had a vertical rise in performance.

The share of Samsung Electronics, which has become the number one semiconductor producer in the world, and SK Hynix for the total operating profits from the top 10 firms stood at 38.8 percent and 15.1 percent as of last year. The two South Korean companies took up 53.9 percent of the global semiconductor market in terms of operating profits. Samsung Electronics also ranked first in the world in terms of sales, beating Intel Corp., while SK Hynix took third place.

However, there are growing concerns over South Korea’s reliance on semiconductors as memory chip prices are forecast to drop from the second half of this year. DRAMeXchange expects that the price of DRAM chips will drop 15 to 20 percent next year compared to this year, while that of NAND Flash chips will decrease 25 to 30 percent. The industry also thinks that the price adjustment will be inevitable until the first half of next year.

There is no next growth engine for Korea following semiconductors. For the nation’s major export items, including smartphones, home appliances, cars and steel, cannot expect a rapid increase in exports owing to China’s rise and global protectionism. Cosmetics, biotech and secondary batteries have growth potential but it is not large enough to replace memory chips.