[Exchange Rate 1400 Won] Semiconductor Industry Anticipates Currency Gains Amid Weak Business Conditions in China

Exchange Rate Surpasses 1,400 Won on the 22nd... First Time Since the 2009 Financial Crisis
Export-Based Semiconductor Industry Anticipates Foreign Exchange Gains
Long-Term Profit Outlook Limited Due to Offset Effects from Rising Raw Material and Other Costs

The exchange rate surpassed 1,405 won during trading [Photo by Yonhap News]

[Asia Economy Reporter Kim Pyeonghwa] As the exchange rate surpassed 1,400 won, there are expectations that the semiconductor industry, which is export-based, could see increased profits due to foreign exchange gains. This is seen as potentially helpful for profit growth amid the recent sluggish market conditions. However, from a long-term perspective, the profit increase may be limited due to rising raw material costs and other factors.

On the 22nd, the won-dollar exchange rate exceeded 1,400 won in the Seoul foreign exchange market. As of 9:57 a.m., it was trading at 1,405.40 won. The dollar strengthened significantly after the U.S. Federal Open Market Committee (FOMC) implemented a giant step by raising the benchmark interest rate by 0.75 percentage points at once overnight.

The exchange rate surpassing 1,400 won is the first time in about 13 years and 6 months since March 31, 2009, during the global financial crisis. At that time, it recorded an intraday high of 1,422.0 won.

With the exchange rate exceeding 1,400 won, the semiconductor industry is expecting benefits from foreign exchange gains. As the semiconductor market growth has recently slowed, and the domestic semiconductor industry's main focus, the memory sector, is experiencing even weaker conditions, companies are aiming for profit increases through foreign exchange gains.

According to Korea Credit Rating, semiconductors belong to an industry group positively affected by the strong dollar, along with displays and automobiles. Since semiconductors are an export industry, receiving payments in dollars can increase profits through foreign exchange gains. The ability to hold export payments without converting them also positively impacts profit growth.

Lee Joo-wan, a research fellow at POSCO Research Institute, explained, "In the case of semiconductor manufacturing, when the won-dollar exchange rate rises from 1,150 won to 1,400 won, sales increase by 21%, gross profit rises by 56.7%, resulting in a 10 percentage point increase in the gross profit margin."

In fact, Samsung Electronics and SK Hynix stated in their Q2 conference calls that the exchange rate increase positively affected semiconductor performance. Samsung Electronics cited the exchange rate as one of the reasons for the increase in memory semiconductor sales and operating profit in Q2 compared to the previous quarter and the same period last year. SK Hynix also revealed that the strong dollar generated 500 billion won in foreign exchange gains in sales, leading to an operating profit increase of over 400 billion won.

However, from a long-term perspective, the profit from exchange rate increases may be limited. This is because various costs, including semiconductor raw materials, may also rise. The semiconductor industry's reliance on long-term contracts supports this view.

An industry insider said, "Since semiconductors are dollar-based, the costs that must be paid increase as much as the revenue received, resulting in an offsetting effect," adding, "Because of the long-term contract basis, the profit from foreign exchange gains may not be significant."