Posted : 2012-12-19 16:51
Updated : 2012-12-19 16:51

Tablets, China to boost chipmakers

Samsung Electronics engineers work at the firm's chip factory in Giheung, Gyeonggi Province. Korean semiconductor makers are expected to show robust performances in 2013 thanks to high demand for mobile memory chips for tablets and an economic recovery in China. / Korea Times file

By Cho Mu-hyun

Local chip giants Samsung Electronics and SK hynix are optimistic on the back of high demand for mobile memory chips for tablets and the emerging Chinese market, industry observers said Tuesday.

The two firms, the world's first and second-largest semiconductor manufacturers, have enjoyed large orders for their mobile dynamic random access memories (DRAM) due to the increasing sales of smartphones. Next year, it will be the expansion of the tablet market that will fuel their growth.

"The mobile DRAM market will continue to grow thanks to tablets. The tablet market will grow at a much higher rate compared to mobile phones next year, and will guarantee high demand for Samsung and SK hynix," said Seoul-based analyst Thomas Kang.

According to market researcher iSuppli, the global tablet and smartphone market will grow 51 and 27 percent next year, respectively. The former is forecast to grow 30 percent on average annually compared to the latter's 19 percent from 2012 to 2016.

The shipment volume for tablets worldwide is currently only a sixth of that for handsets at around 118 million to the latter's 650 million. But by 2016, shipments of tablets will rise to some 338 million compared to smartphones' 1.286 trillion.

This year saw massively popular releases of tablets, mainly by American firms, such as Google's Nexus 7, Apple's iPad Mini and Amazon's Kindle Fire. Other companies are also planning to boost their lineups.

For information technology firms, the United States has traditionally been the place to expand, but now it is China.

According to a report by securities service provider E-Trade, the Asian country overtook America as the biggest smartphone market from the third quarter. They control 20.8 and 14.4 percent of the global share respectively. Rising Chinese firms, besides ZTE and Huawei, will become key clients, it said.

"Have you heard of smartphones brands such as Renovo, Coolpad, Gionee, K-Touch, and Hisense? New Chinese smartphone makers are appearing," said Kim Ji-woong, an analyst at E-Trade, adding that these firms are important business clients for SK hynix. The decreased yield rate from Taiwanese chipmakers during the fourth quarter will help SK immediately.

The increased clientele will provide the two Korean chipmakers with bargaining power to sell their products at reasonable prices.

"Right now the mobile DRAM is the most lucrative. High demand will likely continue next year," agreed Kang.

PC DRAM prices, unlike mobile chips, have been plummeting due to lowered demand for desktop computers but the deteriorating rate is not as critical as earlier predictions, according to industry analysts. "The biggest task for Samsung and SK hynix will be to sustain its businesses until tablets become large enough to offset falling margins from PCs, which will be easily achieved as they now have no real rivals," said Kang

NAND flash mobile memory chips are also in high demand. The non-volatile chips, the mobile counterpart to PC hard drives, have faced setbacks due to a limited number of buyers. But producers will also benefit from the rise of mobile device manufacturers but not as much as the rebound for mobile DRAM chips, said analysts.

Daishin Securities analyst Jeff Kang chose the two Korean chip giants as "top picks" for stock purchase for clients in a report last week owing to recovering DRAM and NAND flash prices.

SK hynix, despite a turbulent year that included management changes due to a buyout by SK Telecom and vacillating numbers for its quarterly profit because of fluctuating demand, has opened a new line in Cheongju focused on NAND flashes. It plans to increase output.

Another key point for the two Korean businesses will be system large-scale integrated circuits (LSI), or the non-memory chip business, as it has the most growth potential.

Samsung Electronics' system LSI division has enjoyed a spectacular rise thanks to a partnership with Apple formed two years ago. The Suwon-based technology giant makes application-processors (AP) for its friend-and-foe, selling $10 billion worth this year.

Its portfolio is increasing its competitive edge. The world's largest electronics maker by revenue plans to unveil a new AP based on ARM's big.LITTLE processing that will realize an octo-core processor to be used in the Galaxy SIV. "This means Samsung Electronics has secured a growth engine for the mid to long term," said KB Investment Securities.

SK hynix is a late comer to the lucrative sector in 2008, with it only accounting for between 3 to 5 percent of output depending on the quarter this year.

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