2015 performances show Korea's industrial leaders faltering

By Choi Sung-jin

Major companies that represent Korea Inc. are announcing last year’s results, showing the nation’s industrial pillars are being shaken seriously, analysts said Wednesday.

Their aggravated bottom lines have been anticipated to some extent, but the larger-than-expected falls in the sales and profits of steel, semiconductor, auto and shipbuilding companies are causing concerns about the collapse of the very industrial portfolio that has propped up the national economy, they said.

The first sign came early this month when Samsung Electronics announced its provisional performance figures. Its annual sales managed to exceed 200 trillion won ($166 billion) in 2015 but marked a decline for two consecutive years. Such a business setback was confirmed by Hyundai Motor and SK Hynix, whose operating income in the fourth quarter plunged 19.2 percent and 40.7 percent, respectively, from a year ago.

Hyundai Motor’s sales have increased since 2012 to 91.95 trillion won last year, the first time they have surpassed the 90 trillion-won threshold.

What matters, however, is profitability. The carmaker’s operating profit fell 15.8 percent to 6.35 trillion won and its net profit dropped 14.9 percent to 6.5 trillion won. “The slide of operating profit was due to the falls of emerging economies’ currencies (such as Brazil and Russia) and toughened competition in major markets (including China),” the company said.

The problem is Hyundai’s performance is not transient but close to a trend. The carmaker’s operating profit peaked at 8.44 trillion won in 2012 and fell to 8.3 trillion won in 2013, 7.55 trillion won in 2014 and to the 6 trillion–won range last year. The decline has also become steeper, as seen in the drops of 1.4 percent in 2013, 9.2 percent in 2014 and 15.8 percent in 2015.

It seems hard to expect a turnaround this year, either, the analysts said, given emerging markets account for 60 percent of Hyundai’s sales. “Business in emerging markets is showing little sign of a rebound anytime soon, as oil and other commodity prices are falling to record-low levels,” said a stock market analyst. “The launch of luxury-brand cars may improve Hyundai’s profitability somewhat but there are clear limitations to market situations getting much better.”

SK Hynix registered sales of 18.79 trillion won and operating profit of 5.33 trillion won in 2015, breaking records for three consecutive years.

Its fourth-quarter performance tells a little different story, however. The chip maker’s sales in the last three months stood at 4.41 trillion won, down 10 percent from the preceding quarter and 14 percent from a year ago. Its operating profit of 989 billion won also marked declines of 29 percent from the previous three months and of 41 percent from a year earlier.

Company officials attributed the disappointing results to steep demand drops and price falls of its DRAM and NAND flash chips. Given the memory chip market enters a low-demand phase in the first quarter, market outlooks are unclear.

POSCO, which will announce its results Thursday, is expected to record a net loss on a consolidated-accounting basis for the first time since its foundation in 1968. The supply glut that has gripped the global market since 2010 disrupted POSCO’s “black-figure” history. Stock analysts estimate its sales to stay below 60 trillion won last year, compared with 65.1 trillion won in 2014.

Theoretically, Korea’s largest and best-known companies, such as Samsung, Hyundai, SK and POSCO, should be enjoying a boom, benefitting from low interest rates, low oil prices and the low value of the Korean currency, but a global demand slump has offset these positive factors, analysts said. Rapid chases by Chinese companies, armed with competitive prices ― and even quality ― also sharply eroded the Korean industrial leaders’ market share, even at home.

All this stresses the need for them to restore corporate dynamism, develop new growth engines and upgrade the nation’s industrial portfolio a few notches higher, lest they become peripheral players permanently, analysts said.