The Korea Herald


Korean chipmakers suffer decline in market cap, profitability

By Son Ji-hyoung

Published : Oct. 24, 2022 - 13:25

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An exhibition booth of Samsung Electronics at Flash Memory Summit 2022 venue in Santa Clara, the United States. (Samsung Electronics) An exhibition booth of Samsung Electronics at Flash Memory Summit 2022 venue in Santa Clara, the United States. (Samsung Electronics)

South Korean chipmaking giants have suffered a decline in their market capitalization and profitability due to heated competition from Chinese rivals and a heavy tax burden, data showed Monday.

Of the world's top 100 chipmakers in the world by average market cap from January to September period, only three local players -- Samsung Electronics, SK hynix and SK Square -- were listed, according to the Federation of Korean Industries, a lobby group based in Seoul, citing data from S&P Capital IQ. SK Square is the parent of SK hynix.

Korea was ranked No. 6 in terms of the number of companies in the top 100 in market cap list, following China's 42, the United States' 28, Taiwan's 10, seven from Japan and four from the Netherlands.

Samsung Electronics, which offers memory chip products, mobile processors and foundry services, moved down to No. 3 by market cap as of October, coming in behind Taiwan-based TSMC and US-based Nvidia. Samsung was ranked No. 1 in 2018.

Local memory chip rival SK hynix also saw its position drop, falling four notches to No. 14 in October.

Profitability of the chipmakers also dwindled in tandem. The net income margin of Korean chipmakers fell from 16.3 percent in 2018 to 14.4 percent in 2021. Korea was the only country among the prospective members of the so-called "Chip 4" alliance to see a decline. The potential other members of the alliance -- the US, Japan and Taiwan -- all saw profit margin increases.

The growing corporate tax burden in Korea likely attributed to Korean chipmakers' struggle to achieve scalability, according to FKI.

Korean chipmaking firms have spent over 25 percent of pre-tax income on tax payments since 2018, nearly double that of companies in the United States and Taiwan.

In the meantime, Korean chipmakers spent cash that amounts to 63.1 percent of cash flow from operations on the facility investment, topping the US, Taiwan and Japan.

"Korean chipmakers have been spending big on facility investment and research to maintain an upper hand in the world's semiconductor industry despite falling market caps and slowing profitability," noted Yu Hwan-ig, head of the corporate policy department at FKI.

"Against this backdrop, Korean firms shoulder a bigger tax burden compared to their competitors, which will eventually leave Korean firms behind in the global chip race."