SK-Hynix eyeing chip supremacy
Chipmaker to boost investment in order to close gap with rival Samsung
By Kim Yoo-chul
Hynix Semiconductor has a new name but its goal remains the same: beating domestic rival Samsung Electronics in the battle for global supremacy in the chip market.
Recently renamed SK-Hynix after being acquired by the SK Group, it plans to significantly increase investment for designing and producing computer memory chips to close the gap with Samsung.
It can ill-afford to be complacent as company officials admit Samsung is at least ``six months advanced’’ in developing chips, not to mention its edge in manufacturing muscle.
Samsung is obviously keeping a close eye on its previously-troubled rival, now with the financial backing of the country’s biggest mobile phone carrier, SK Telecom, by ruthlessly expanding its manufacturing muscle, including the building of its first factories in China.
SK-Hynix sources say the company will be able to respond with big announcements of its own soon. SK Group Chairman Chey Tae-won has promised a big budget to strengthen capabilities in computer memory chips and also boost its position in next-generation segments of non-memory and high-margin products.
``SK Group is preparing a sizable budget for the chip-making business. Although we don’t have exact figures, we can say SK-Hynix’s annual investment will increase by at least 10 percent,’’ said Park Sang-hoon, president of SK Biopharmaceuticals.
``We will be able to justify our investment as a recovery is expected in global demand for electronic goods. We plan to strengthen our position in NAND flash type chips used in mobile devices like smartphones.’’
Park, along with SK Corporate Center President Kim Joon-ho, is leading an SK team of executives to streamline SK-Hynix into SK’s larger business lineup.
Park is managing issues related to manufacturing, research and development (R&D) and marketing, while Kim is the decision maker in finance and human resources.
Another SK source, who declined to be named, was more specific, saying that the group’s investment in semiconductors will be north of 5 trillion won, higher than the chipmaker’s initial plans of 4.2 trillion won.
``The goal for SK is to close the technology gap with Samsung as soon as possible. We are ready to make the necessary investment to do that and make chip-making a major profit engine for the group as quickly as we can, as we have been failing to achieve breakthroughs in global markets with other businesses,’’ said the SK official.
``Our strategy is simple: invest more in profitable non-memory chip segments with money made from memory chips.’’
Samsung controlled 45 percent of the global DRAM market by the end of the third quarter last year, compared to Hynix’s 22 percent.
Samsung’s share in NAND-type memory chips was 39.1 percent, compared to Hynix’s 12.2 percent, according to data from iSuppli.
The wave of consolidation sweeping the semiconductor industry this year, including talks of a three-way blend of U.S. firm Micron Technology, Japan’s Elpida Memory and Taiwan’s Nanya, will benefit the Korean market leaders by reducing competition and mitigating the overcapacity in DRAMs, according to industry sources.
``Good execution could favor Micron over time, but for now we think Samsung and Hynix would see significant shared benefits from less DRAM vendors and possible longer-term net reduction in overall DRAM industry capacity,’’ said Nicolas Gaudois, an UBS analyst.
It remains to be seen whether SK-Hynix’s efforts to strengthen in computer memory chips will be enough to secure it a lucrative future in this volatile segment. Hogging a larger part of the pie in non-memories is also a priority.
Unlike memory chips, which are basically used to read and store data, non-memory chips are used to control an entire computing system.
They often offer higher margins but have been a tough nut to crack for Korean chipmakers, as their strength continues to be more labor-intensive than technology-intensive.
``SK-Hynix will raise the revenue portion of non-memory chips to 4 percent this year from last year’s 2 percent. Hynix’s outdated M8 chip line will be transformed to produce custom-made chips on a contract basis,’’ said Park.
``By the end of 2015, SK’s chip unit will create 1 trillion won for non-memory chips alone.’’
Samsung Electronics is already supplying its mobile application processors (APs) ― a variant of non-memory chips ― to Apple’s iPhones and iPads via its plant in Austin, Texas.
It is also using its own Exynos-named mobile APs in its Galaxy devices with an aim to better compete with top-tier non-memory chipmakers such as Qualcomm and Texas Instruments, said Samsung officials.
Hynix’s profit structure has so far been cyclical upon market situations because it is mostly focused on memory chips.
SK is considering even transforming Hynix’s line in Wuxi, Jiangsu Province, to both produce both DRAM and NAND chips for a better product mix-up, though Park declined to confirm this.