Profit Margin Nears 10% This Year... Sharp Rise in Profit Margin
Biden Orders Review of Semiconductor and Battery Supply Chains
Operating Profit Expected to Increase by 317% Year-on-Year
[Asia Economy Reporter Hyungsoo Park] Expectations for improved performance of Jeju Semiconductor, a fabless company specializing in memory semiconductor design, are growing. There is increasing confidence in the forecast that its performance will improve, led by IoT semiconductors, memory products for Qualcomm 5G modems, and automotive semiconductors for vehicle electronics.
On the 25th, Shinhan Financial Investment estimated that Jeju Semiconductor will achieve sales of 204.5 billion KRW and operating profit of 19.7 billion KRW this year, representing increases of 12% and 317% respectively compared to the previous year. The reason operating profit is growing faster than sales is due to improved profit margins.
Researcher Kangho Oh of Shinhan Financial Investment analyzed, "With the rebound in semiconductor prices and the expansion of demand for automotive semiconductors, the operating profit margin is expected to reach 9.6%, which is 7.0 percentage points higher than last year."
Jeju Semiconductor is a fabless semiconductor company specializing in the development of memory semiconductors. It applies low-capacity memory semiconductor products to IoT, mobile, and automotive electronics. Last year, it received 5G product certification from Qualcomm, the world's largest communication semiconductor company based in the U.S. Recently, it began mass production supply of memory semiconductors to automotive electronics companies.
Jeju Semiconductor obtained ‘AEC-Q100’ (Automotive Electronics Council's reliability standard for automotive components) certification for five memory semiconductor products last year. This certification is essential to enter the highly demanding automotive electronics sector.
Jangyeol Kim, Head of Research at Sangsangin Securities, explained, "Jeju Semiconductor received the AEC-Q100 certification for emergency external communication functions in vehicles," adding, "Evaluations have been completed in Europe and Korea, and we expect successful market penetration."
He continued, "The target market, which has been prepared for over three years since 2018, can be stably secured for five years once adoption begins," and added, "Jeju Semiconductor aims for an average annual growth rate of 30% in the mid-term and targets semiconductor sales of 300 billion KRW by 2024."
Furthermore, he emphasized, "Certification from Qualcomm is an important measure of Jeju Semiconductor's mid- to long-term growth potential and technological status," and "The first certification at the end of July last year may be just the beginning."
Kim analyzed, "Considering Qualcomm’s needs as a leading company in the expansion of the 5G era and Jeju Semiconductor’s technological capabilities, there is ample possibility for continuous additional certifications," adding, "If this scenario materializes, it could be an opportunity for valuation reassessment."
Kim also stated, "The memory for vaccine storage was an opportunity to prove technological capability," and "We have sufficient inventory amid the booming industry." He further explained, "Due to the semiconductor supply shortage, it has become increasingly important for fabless companies to secure stable production and supply," and "Jeju Semiconductor holds nearly six months’ worth of inventory as of the end of last year."
Thanks to proven technological capabilities, Jeju Semiconductor’s foundry production volume has reached its maximum capacity as semiconductor orders have surged recently. With a favorable environment continuing, this is expected to translate into improved profit margins. On the 24th (local time), U.S. President Joe Biden ordered a review of supply chains for critical items that have revealed structural supply issues. The review targets include semiconductor chips and automotive batteries, areas where Korea holds technological superiority in the global market.
Due to a shortage of automotive semiconductor chips, production lines at U.S. automakers have halted. If the Biden administration’s review focuses on reducing dependence on China for these items and expanding and strengthening supply chains through alliances, it is expected to work favorably for Korea.
Researcher Kangho Oh said, "Semiconductor prices are rebounding," and analyzed, "This is a phase where demand recovery is occurring amid a supply-constrained environment." He added, "When semiconductor prices rise, product unit prices also increase," and "The increase in demand for automotive memory semiconductors is also a positive factor."
He emphasized, "The amount of semiconductors installed inevitably increases with autonomous driving and expanded functions," and "Attention should be paid not only to high-performance, high-spec semiconductor products but also to the expansion of low-power semiconductor product groups."
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