Three-way Fork
Samsung Electronics, SK, and LG Electronics are walking different paths in the semiconductor industry. The first two are making huge money from their semiconductor business, whereas LG Electronics is falling behind due to its business structure that focuses on finished goods.
According to financial service provider FnGuide’s data published on May 6, Samsung Electronics reached 198.2649 trillion won (US$193.1100 billion) in market capitalization as of May 2, while that of LG Electronics stood at 11.4389 trillion won (US$11.1415 billion).
In as recently as 1988, LG Electronics, which was GoldStar at that time, had a market cap twice that of Samsung Electronics. The two companies were engaged in competition in good faith for a while before and after that time.
However, things began to change from 1999, when LG Electronics decided to hand over its semiconductor business unit to Hyundai Electronics, the predecessor of SK Hynix. Since then, LG Electronics’ aggregate market price has fallen to around 15 percent of Samsung’s, and then to below 5 percent since 2011.
Samsung declared its concentration on DRAM in 1983 and made consistent investment in the sector to take its foremost place 10 years later. Semiconductors have been one of the cash cows of Samsung Electronics since that time. The profits have flowed into the other business units of Samsung, and the group has become the global number one in TV in 2006 and in mobile phones three years ago.
LG Electronics, in the meantime, continued its solid growth for some time even after the handover of its semiconductor business unit, thanks to its consumer electronics and mobile phones. The company sold close to 20 million units of the Chocolate Phone in 2008 alone to further accelerate its growth. However, it failed to adequately respond to the emergence of smartphones and its performance has been on a downward spiral. In short, the gap between Samsung and LG has widened due to the semiconductor business.
However, the SK Group has succeeded in what LG has failed at. The recently-acquired SK Hynix is currently spearheading the growth of the entire group, while the other subsidiaries such as SK Telecom and SK Innovation are finding it hard to make a breakthrough.
SK Hynix recorded 1.057 trillion won (US$1.034 billion) in operating profits in the first quarter of 2014, regaining the 1 trillion won mark in two quarters and posting an operating profit rate of as high as 28 percent. SK Telecom’s profits were just 252.4 billion won (US$246.9 million), and SK Innovation turned a deficit during the period.
In addition, SK could shed its image as a domestic enterprise by taking over Hynix. Last year, the 15 listed subsidiaries of SK recorded combined sales of 147.9055 trillion won (US$144.6516 billion), and 51.9 percent or 76.7322 trillion won (US$74.8139 billion) of it was derived from exports. It was in that year that the ratio of exports to total sales exceeded 50 percent for the first time since the group’s inception back in 1953.