'Accumulating Ammunition'... DB HiTek Chooses Cash Over Investment

Cautious Approach to Large-Scale Expansion
Focusing on Mid- to Long-Term Development of 8-Inch SiC and GaN Semiconductors

[Asia Economy Reporter Park Sun-mi] DB HiTek, a foundry (semiconductor contract manufacturing) company based on 8-inch (200mm) wafers, is taking a cautious approach by not utilizing its snowballing cash reserves for investments or research and development (R&D).

According to the Financial Supervisory Service's electronic disclosure system on the 28th, DB HiTek recently deposited 30 billion KRW in its affiliated financial company, DB Savings Bank. It is a one-year fixed deposit product with an annual interest rate of 5.4%. DB HiTek also entrusted 30 billion KRW to DB Savings Bank last year. The reason DB HiTek continuously places funds in fixed deposit products is that the foundry industry performed well last year and this year, significantly improving its earnings and enabling substantial cash accumulation.

The fact that DB HiTek has secured sufficient cash can also be seen in the recent sharp increase in short-term financial products. As of the end of the third quarter, short-term financial products amounted to 404.3 billion KRW, which is 2 to 3 times higher than 131.4 billion KRW in 2020 and 184.9 billion KRW last year. The size of current assets, including cash and cash equivalents and short-term financial products, also increased by about 50% to 1.246 trillion KRW from 815.1 billion KRW the previous year.

Performance is breaking records every quarter. Third-quarter sales and operating profit were 447.4 billion KRW and 220.4 billion KRW, respectively, up 36% and 85% year-on-year. Operating profit margin exceeded 45% every quarter this year, reaching 49% by the end of the third quarter.

However, it is not easy to actively use the increased cash for expansion investment and R&D. The 8-inch foundry business, which DB HiTek focuses on, requires equipment procurement for expansion, but equipment suppliers are withdrawing from the 8-inch segment. Starting the highly demanded 12-inch foundry business would mean competing with global foundry giants like Samsung Electronics and TSMC, which is a significant burden.

Also, since building a new plant takes at least 3 to 5 years, it is difficult to decide on new investments by gathering cash during uncertain times when the semiconductor market is volatile and unpredictable. In fact, DB HiTek concentrated on facility improvement investments this year to enhance production efficiency at existing plants.

They have set plans to focus capabilities on developing next-generation products suitable for power semiconductors used in electric vehicles, such as 8-inch silicon carbide (SiC) and gallium nitride (GaN) semiconductors, but this is a mid- to long-term plan targeting mass production in 2025?2026, so there is no immediate need for large-scale funding. Since it is still in the early development stage, R&D expenditure is not high. DB HiTek's R&D expenses as a percentage of sales have been decreasing continuously from 6.62% in 2020 to 5.57% last year and 4.42% from January to September this year.

An industry insider said, "So far, the foundry industry has been good, but as early as the fourth quarter or at least the first half of next year, the impact of declining semiconductor demand could extend to the foundry market. Since small- and medium-sized foundry companies, excluding Samsung and TSMC, are not in a position to make large-scale investments hastily, they are currently accumulating cash and exploring mid- to long-term plans."

Regarding this, a DB Group official said, "DB HiTek focuses on analog semiconductors, which have a small market and are produced in small quantities of many varieties, so its investment strategy is different from TSMC, which produces small varieties in large quantities centered on 12-inch wafers. We will put more effort into developing high-performance power semiconductor technology, which is a growing market."