Korean chipmakers face Chinese threat
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SK hynix CEO Park Sung-wook
By Kim Yoo-chul
The “New Memory Paradigm” is now dead, ushering in a new leg of the “Old Memory Paradigm.”
Although the global memory chip industry has fundamentally changed after significant consolidation and a slowing retraction, there are several recent developments that are conspiring to reduce profitability and significantly cut investor confidence in within the year.
Amid the new market order, Samsung Electronics and SK Hynix, the world’s two biggest memory chip producers, had expected to win more benefits than their rivals.
But growing appetites by Chinese companies for entry into the memory chip market on the back of huge subsidy programs by the Chinese government are posing a “real threat” to the leading Korean chip fabricators.
Beijing, which has established a national fund to support the semiconductor sector, has also pushed technological self-sufficiency following Edward Snowden’s revelations that the U.S. National Security Agency went through the backdoor in making some U.S. technology products to spy on foreign governments, according to diplomatic sources.
SK Hynix CEO Park Sung-wook, who is also the chairman of the Korea Semiconductor Industry Association (KSIA), said that he’s been aware of worries that the latest moves by Chinese companies can possibly make things worse.
“All industry players and related parties should team up. China is a real threat. We should be fully prepared,” KSIA chairman Park said, Thursday. “Korea is the home of two global memory chip companies. But Korea is still weak in the overall semiconductor market given the country’s poor exposure in profitable logic chips.”
The winning formula for the memory chip business is supplying products to customers with on-time delivery, output commitment and better pricing. But logic chips such as application processors require more advanced technology as they are used to control an entire computing system.
Park said China’s entry into the memory chip market and other new technologies that threaten to cannibalize mainstream memory creates further worries in the long term.
“I’m not sure whether or not Korean companies will be able to report an increase in profit in the future as the market situation seems very tough,” said Park.
China’s aggressiveness in memory chips is beyond the horizon of most investors but enough of a threat to remain an overhang to stocks and multiples for the foreseeable future, until the industry’s profitability resets to a significantly lower level.
Experts have said today’s oversupply situation will become “infinitely worse” if and when China’s plan to invest billions of dollars in chip plants happens.
China is the single biggest memory chip market in the world. KSIA chairman Park said that forming strategic collaboration with Chinese players is “one possible option” to address the growing challenge.
“China is Korea’s biggest competitor; however, China is also its most important market. Our partners have now become our competitors. We are facing a complicated situation,” said the chairman.
Chinese chip manufacturers make up a negligible percentage of production of memory chips, which are used to store data in electronic gadgets.
Chinese policymakers believe semiconductors can promote a shift from low-end manufacturing to advanced and high-end sectors.