A Profitable Affiliate Emerges in the Semiconductor Supercycle

Major Groups' Semiconductor-Related Businesses Rapidly Rising
Fabless and Foundry Sales Surge
Materials, Components, and Equipment Businesses Also Reassessed
Increased Business Share and Valuable Recognition

[Asia Economy Reporter Suyeon Woo] With the global semiconductor supply shortage and rising expectations for a super cycle (long-term boom), semiconductor-related businesses of major groups are rapidly emerging as 'profitable businesses.' Not only direct semiconductor manufacturing such as fabless (design) and foundry (contract manufacturing), but also materials, components, and equipment businesses are being reevaluated by increasing profitability.

According to the industry on the 23rd, LX Group's fabless company LX Semicon's operating profit in the first quarter reached 59.2 billion KRW, a remarkable 407% increase compared to the same period last year. The consensus for operating profit in the second quarter of this year is also estimated at 63.8 billion KRW, a surge of about 580%, and some expect operating profits to exceed 80 billion KRW, far surpassing market expectations.

The background of this strong performance outlook is the prolonged shortage of Display Driver ICs (DDI). Since the second half of last year, the DDI shortage has intensified, accompanied by price increases. Recently, the prices of medium-to-large DDIs were raised by 10% each in the first and second quarters, and the industry expects at least one more price hike in the second half of the year. Additionally, with the increasing sales proportion of DDIs for OLED TVs, it is expected that the 1 trillion KRW sales target will be easily achieved this year as well, following last year.

DB Group, which primarily operates in the financial industry, also shows remarkable performance with its foundry company DB HiTek. Even before the shortage of the main 8-inch foundry process appeared, DB HiTek was the group's 'cash cow' with a quarterly operating profit margin exceeding 30%. The operating profit forecast for the second quarter of this year is mentioned to reach the highest quarterly record of around 80 billion KRW. The global shortage of 8-inch foundries is expected to continue until 2022, and there are reports that DB HiTek has already received pre-orders for 2022's order volume.

There are also groups that are making significant profits not only in semiconductor manufacturing but also in materials, components, and equipment businesses. SK Group, which operates its semiconductor business through its core affiliate SK Hynix, has also entered the semiconductor parts and materials business with SK Siltron and SK Materials, achieving results. SK Siltron, which produces semiconductor wafers, has maintained near full operation rates of 94-99% from 2019 through the first quarter of this year, and last year completed the acquisition of the silicon carbide business from the US company DuPont, laying the groundwork for entering the next-generation power semiconductor wafer market.

Doosan Group, which has been undergoing harsh restructuring until recently, is also focusing on the semiconductor materials industry to improve its business structure. Doosan Corporation has divested its industrial vehicles and hydraulic equipment businesses among its three core businesses but has held on to its electronics business producing key semiconductor materials (copper-clad laminates). In the first quarter, Doosan Corporation's electronics division's operating profit increased by 22% compared to the previous year, and the proportion of the electronics business is expected to steadily expand in the future.