Samsung, Hynix Diversify Business Strategies
By Kim Yoo-chul
Staff Reporter
Expected but somewhat disappointing quarterly earnings results have prompted the two local chip giants, Samsung Electronics and Hynix Semiconductor, to push for diversification of their business strategies amid deepening uncertainties in the chip industry.
The quick reactions seemed to have slightly eased investors’ uneasiness for Samsung and Hynix. Shares of Samsung Electronics, which had plunged to a two-year low of 517,000 won right after the revelation of the third-quarter earnings, rebounded to 520,000 won level, while Hynix, which had fallen to a then 52-week low of 25,650 won on last Thursday, is expected to rebound soon on emerging expectations for its non-memory business.
Samsung’s semiconductor division, which contributed to more than 70 percent of the company’s operating profit in 2006, suffered a 28 percent drop in operating profit in the July-Sept. period due mainly to a steady price decline of DRAM chips. Samsung is the world’s largest maker of DRAM chips.
But an improved operating margin in its handset division, propelled by record quarterly phone sales, and bright performances in the flat-panel division snapped the profit decline amid a supply glut in the chip industry.
Chu Woo-sik, head of Samsung’s investor relations team, said the company has decided to expand its investment in the semiconductor business by 25 percent to 6,840 billion won for the rest of the year, although he expected the oversupply problem to continue.
Chu said healthy demand for more profitable NAND flash chips, pricey handsets and large-sized LCD panels is likely to continue and such a diversification of business portfolios will help Samsung maintain its upward momentum in the fourth quarter.
Hynix, which suffered a setback in the third quarter due to weaker DRAM prices, has announced plans to re-enter the non-memory business to find another income source while trying to accelerate its move to lower the portion of DRAM chips in its business portfolio.
The company’s operating profit for the July-Sept. period plunged 44 percent to 254 billion won on a consolidated basis from a year ago, falling short of the earlier market consensus of some 350 billion won. The operating profit margin also fell from 13 percent a year ago to 10 percent.
Unlike Samsung, Hynix is burdened with DRAM chips accounting for nearly 70 percent of its sales.
``We will increase the portion of new businesses to a maximum of 40 percent in terms of sales by 2017. The start of the complementary metal-oxide semiconductor (CMOS) or CIS businesses is the first step toward the long-term goal,’’ Hynix spokesperson Park Hyun told The Korea Times, Monday.
CIS is used for mobile phone cameras and use 10 percent of the power of widely used charged coupled device image sensors. According to industry estimates, U.S.-based Micron Technology, Samsung Electronics and Toshiba from Japan account for 50 to 60 percent of the CIS market. Hynix once dominated about 50 percent of the market before selling MagnaChip.
Park said the company will raise the proportion of high-end memory chips such as PRAMs to 30 percent by 2010, which is in line with Samsung’s move to increase the portion of NAND flash and high-end DRAM chips.
"We cannot survive only with a focus on memory. So we urgently need to diversify our portfolios," Hynix CEO Kim Jong-kap said.