Witnessing paradigm shift in semiconductor technology

코리아헤럴드 | 입력 2009.11.26 05:45

Korean chipmakers benefit most from recovery

The Korea Herald today publishes a four-page special report on Korea`s leading industries that have not only weathered the global financial crisis since last year, but also helped the local economy pull off one of the fastest recoveries in the world. – Ed.
By Jin Hyun-joo
Korean companies were latecomers to the global semiconductor industry, which was previously dominated by Japanese and U.S. firms.
The scene has changed, with Samsung Electronics and Hynix Semiconductors having grown fast to become the No. 1 and No. 2 memory chip makers in the world.
Their rapid rise resulted mainly from aggressive investments even during times of industrial downturn, which gave them higher market shares and bigger profits when the market turned around.
During the latest chip market slump, which is its worst ever, Korean companies invested in advanced technology to produce chips at cheaper costs, while their cash-strapped rivals pulled back.
As a result, Korean firms have widened their lead over their smaller competitors, and they stand to make the greatest gains from the industry recovery, analysts said.
Game over
“It requires more investment to advance technologies than it did in the past. Therefore, runners-up cannot endure such high costs. Korean firms will further widen a technological gap with their rivals,” said Kim Hyun-joong, an analyst at Tongyang Investment Bank.
He expected second-tier firms, mostly Taiwanese, would lag behind the race as they struggle to keep pace with technology development.
“The game is already over,” he said.
The global recession dealt a severe blow to the sector already suffering from overcapacity and price falls, leading chipmakers to post losses.
However, with their advanced technology and cost competitiveness, Korean firms have rapidly recovered from the slump and cemented their leadership while their rivals were still reeling.
Samsung and Hynix held a combined share of 57.2 percent in the DRAM market in the third quarter, up from 49.3 percent a year ago, according to data from iSuppli. Samsung controlled 35.5 percent of the global DRAM market and Hynix held a 21.7 percent share in April to June 2009. Trailing Samsung and Hynix were Japanese chipmaker Elpida Memory, with a 16.9 percent share and U.S. Micron, which held 12.7 percent, according to data from Samsung.
With the chip sector recovery visible in the third quarter, Samsung and Hynix logged profits, but their smaller rivals remained in the red or posted smaller profits.
Samsung`s semiconductor division posted an operating profit of 1.15 trillion won ($1 billion) in the third quarter, a sharp increase from 240 billion won the previous quarter and 190 billion won a year ago.
Samsung bucks slump
Samsung was the only semiconductor firm among the top 10 suppliers, which is expected to achieve growth in semiconductor revenue in 2009, according to a report by market research firm iSuppli on Tuesday.
Samsung`s revenue is set to grow by 1.3 percent this year, while global semiconductor revenue is forecast to tumble 12.4 percent, iSuppli said.
“Samsung is benefiting from its dominance in the memory market, whose performance was dramatically better than the semiconductor industry as a whole,” Dale Ford, senior vice president at iSuppli Corp. said.
“The company is the No. 1 supplier of both DRAM and NAND flash, the two largest segments of the memory market. Samsung managed to outperform the memory market partly due to its early leadership in new, higher-margin memory products, such as Double Data Rate 3 (DDR3) SDRAM.”
Hynix Semiconductors also ended seven straight quarters of losses and returned to profit in the third quarter, reporting an operating profit of 209 billion won during the July-September period, compared with an operating loss of 211 billion won in the second quarter.
Third-ranked Elpida also posted its first quarterly profit in two years in the third quarter, but its profit is a smaller 500 million yen ($5.6 million), compared with an operating loss of 2.3 billion yen in the previous quarter.
While Samsung and Hynix have started to produce DRAM chips based on more advanced 40-nanometer class technology and plan to increase the portion of the more powerful, cost-efficient chips, their rivals have yet to move to the 40-nanometer class technology.
However, some analysts raise concerns that the industry may face oversupply, as resurgent chipmakers are rushing to invest in manufacturing facilities. Market leader Samsung downplayed worries about overcapacity, saying cash-strapped firms would find it hard to boost investment aggressively.
“Chip vendors will increase investments because the market has improved, but the rise of investments will be limited,” a Samsung spokesperson said.
He added that the sector may see oversupply in first quarter 2010 because of low seasonal demand, but for the whole year the company sees little chance of a supply glut.
Non-memory challenges
But Korean firms, like their rivals, are exposed to the highly volatile memory chip industry. Therefore, they should expand their sales of non-memory chips, which are sophisticated and value-added devices, analysts said.
Although Korean firms hold unrivaled positions in the global memory chip market, they have a weak presence in the non-memory market led by Intel, Qualcomm and AMD. The non-memory market accounts for around 75 percent of the global semiconductor market.
Korean companies heavily rely on imports of system chips used in cars, home appliances and TVs. The non-memory semiconductor sector posted a chronic trade deficit since 2000, and the system semiconductor sector posted its worst trade deficit of $1.8 billion in the first quarter of this year, according to a report by Hyundai Research Institute.
“The major reason for a worsening trade deficit in the non-memory semiconductor business is that local companies have neglected investments in the field. In particular, for system semiconductors, enormous R & D expenses are required, and advanced countries hold key core technologies,” the report said.
Samsung is beefing up its non-memory business, focusing on eight LSI (large scale integration) devices including application processors, which are used in smartphones.
Kwon Oh-hyun, head of Samsung`s memory chip division, said last month that the company seeks to vigorously develop its non-memory business to drive growth and to solidify its market leadership in the memory chip business. The company wants to increase its semiconductor revenue by more than 50 percent in three years – to $25.5 billion in 2012 from an estimated $16.6 billion this year.
Knowledge Minister Choi Kyung-hwan said that the government will come up with measures to foster the non-memory sector.