Stronger won to test chip, display firms' Q3 profitability

The strengthening Korean won is emerging as a fresh earnings risk for chipmakers, display firms and other electronics companies that rely heavily on dollar-denominated transactions, prompting brokerages to cut earnings estimates for the third quarter.

According to data from the Bank of Korea, Sunday, the Korean currency traded at 1,480 won against the dollar on July 16, before strengthening to 1,413 won on Aug. 17 and 1,382 won on Sept. 17. This represents a 6.6 percent narrowing in the dollar-won exchange rate over the two-month period.

The change in the dollar-won exchange rate accelerated particularly from August, with the Korean currency gaining value to 1,336 won per dollar on Sept. 9. This prompted brokerages that had based their earnings forecasts at 1,450 won per dollar to begin cutting their estimates, causing the third-quarter earnings consensus for major companies such as Samsung Electronics and SK hynix to drop.

According to market tracker FnGuide, brokerages’ consensus on Samsung Electronics’ third-quarter operating profit stood at 122.35 trillion won ($88.27 billion) on Aug. 17, but dropped 9 percent to 111.38 trillion won on Sept. 18.

SK hynix saw a similar downward revision. Its third-quarter operating profit consensus fell 6.7 percent from 83.76 trillion won to 78.13 trillion won during the same period.

For chipmakers that generate much of their revenue from dollar-based payments, a stronger won reduces the value of dollar-denominated sales when converted into the Korean currency. At the same time, much of their labor and other operating costs are paid in won, leaving profits more vulnerable to exchange rate volatility.

“Concerns over earnings downgrades stemming from the falling exchange rate, along with the possibility of weaker artificial intelligence (AI) capital expenditure amid macroeconomic uncertainty, have been limiting gains in memory chip stocks,” Daishin Securities analyst Ryu Hyung-keun said.

Ryu revised down his third-quarter operating profit forecasts for Samsung Electronics and SK hynix to 105.5 trillion won and 74.7 trillion won, respectively, from 110 trillion won and 77 trillion won, after lowering his exchange rate assumption to 1,350 won per dollar from 1,450 won.

SK hynix said in its recent earnings report that a 10 percent decline in the won-dollar exchange rate would reduce its pre-tax profit by about 4.75 trillion won, if its foreign currency assets and liabilities remain unchanged from those of June.

Samsung said in its 2025 earnings report that a 5 percent decline in the exchange rate would reduce its pre-tax profit by 435.1 billion won. The impact is relatively smaller than at SK hynix because Samsung’s consumer electronics and mobile businesses, which generate won-based revenue in the domestic market, provide a buffer against currency fluctuations.

Other electronics firms are showing a similar pattern.

Kiwoom Securities analyst Kwon Min-kyu estimated that LG Display’s operating profit will likely decline 40 percent year-on-year in the third quarter, due to the sharp drop in the exchange rate and intensifying cost pressures from soaring chip prices. As of June, LG Display’s overseas revenue accounted for 94.7 percent of its total sales.

“Cost pressures from rising chip prices are beginning to intensify, while the sharp decline in the exchange rate is also bound to weigh on earnings,” Kwon said. “The exchange rate will have a negative impact in the third quarter, but from the fourth quarter, we expect the effect to ease as raw materials are purchased at the lower exchange rate.”