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Semiconductor shock

Jan 10,2019
Samsung Electronics’ earnings hot streak came to a crashing halt in 2018’s fourth quarter as the chip division, which drove nearly 80 percent of its revenue, took a steep dive. According to its earning guidance for the fourth quarter released Tuesday, the company’s sales reached 59 trillion won ($52 billion) and its operating profit was 10.8 trillion won, down 9.9 percent and 38.5 percent respectively from the previous quarter and off 10.6 percent and 28.7 percent respectively from the same period a year ago. Operating profit from the semiconductor division is estimated to be around 8 trillion won, compared with the record 13.65 trillion won in the third quarter.

Samsung’s operating profit for the semiconductor division in the fourth quarter is expected to stop at 8 trillion won, a nearly 6 trillion dive from 13.65 trillion won the previous quarter.

Softening in memory chip prices and demand is behind the reversal of fortune for the world’s largest chipmaker. According to market researchers, the prices of mainstay memory chip prices have fallen 10 to 20 percent in the fourth quarter. Demand remains subdued as CPU customers choose to use up their inventories instead of making new orders amid growing uncertainties from the trade war between the United States and China, and a slowing global economy.

Poorer income results do not necessarily represent the company’s competitiveness. All businesses face up-and-down cycles depending on the demand and prices in the global market. But for Samsung Electronics and Korea, the timing is unfortunate. Samsung has no other candidates to drive growth other than chips. Korea also does not have a competitive technology and product that can substitute semiconductors.

Korea’s other mainstay industries — automakers, shipbuilders, and steelmakers — are struggling against unfavorable market conditions and weakening competitiveness. Exports that have sustained the economy amidst lethargic domestic demand are at stake. The downturn in the chip market is another wake-up call that Korea does not have much time left. The government and enterprises must join forces to come up with competitive innovations to defend the trade front and the economy’s future.

JoongAng Ilbo, Jan. 9, Page 30