[SK Rebalancing Midpoint Review] Vertical Integration in Semiconductors Abandoned for Profitability... "No Sacred Cows in Asset Sales"

Chairman Chey Taewon's Strong Drive for New Businesses
Bold Move to Sell SK Siltron
Focus on Downstream-Centric Semiconductor Strategy
Non-Core Materials with Continued Losses Targeted for Sale

Editor's NoteLast year, SK declared a shift toward future industries and began an aggressive business restructuring and rebalancing initiative. Now, a year later, massive waves such as global economic uncertainty and the strengthening of protectionism in major advanced economies are impacting domestic industries. In this context, Asia Economy examines whether SK Group's strategy remains valid amid these risks and assesses the group's future direction for achieving sustainable growth.

"This is essentially a signal that even prime business units or affiliates could be proactively adjusted. Ultimately, it means that now is the time for a relentless, boundary-free rebalancing centered on new businesses, and for making tough, clear-eyed decisions."

News that SK Group is pushing to sell SK Siltron has come as something of a surprise both inside and outside the group. This is because the new plant in Gumi is set to begin operations in October, and there were high expectations that the company was approaching a performance inflection point. Despite this positive outlook, the decision to begin the sale process is widely seen as reflecting Chairman Chey Tae-won's strong desire to focus on new businesses, with artificial intelligence (AI) at the forefront. Within the group, insiders see this bold move?breaking with the group's semiconductor vertical integration strategy?as a clear demonstration of management's commitment to choice and concentration.

SK Siltron exterior. Provided by SK

Recently, SK Group's rebalancing (business restructuring) efforts have become even broader and more forceful. After launching a massive energy company with 100 trillion won in assets through the merger of SK Innovation and SK E&S last year, the group is now taking the unprecedented step of putting even its core semiconductor wafer maker up for sale. SK Siltron, a semiconductor wafer manufacturer, is valued at around 5 trillion won and is recognized for its global competitiveness, with some product lines ranking third in the world.

Full Focus on Securing Liquidity... Emphasis on Efficiency

Analysts say SK Group's continued bold restructuring is driven by a strategic pivot toward optimization and efficiency. In the case of SK Siltron, factors cited as reasons for the sale include a market environment that makes wafer procurement easy and inherent limitations in the company's competitiveness. A company official explained, "There were previous attempts to expand into sapphire and solar businesses, but those failed in succession. Moreover, wafer products are now mostly used as 'dummy wafers,' so their strategic importance has diminished."

A capital markets expert commented, "When SK acquired Siltron, the strategic intent was to strengthen vertical integration in semiconductors. However, subsequent poor performance and limitations in cost competitiveness became apparent. Considering that standard wafers can now be reliably sourced in the market, holding onto Siltron could end up being a fixed cost burden." He added, "By focusing on a downstream-centric semiconductor strategy and divesting Siltron, SK is making a strategic choice to maximize efficiency.""

The sale of SK Siltron is seen as a continuation of SK's rebalancing strategy over the past year, aiming at both profitability-focused portfolio restructuring and liquidity enhancement. Last year, SK secured liquidity of 18 trillion won through asset sales and various financial instruments. According to the business report, this included 3.1238 trillion won from sales proceeds and about 2.0924 trillion won from discontinued operations, totaling approximately 6 trillion won. The remaining 12 trillion won was raised through a variety of financial instruments, such as redeemable convertible preferred shares (RCPS), convertible preferred shares (CPS), hybrid securities, and total return swap (TRS) contracts.

Organizational restructuring was also carried out in parallel. The number of subsidiaries increased to 716 as of 2023, before rebalancing, but was reduced to 649 by the end of 2024. Over the same period, the number of major subsidiaries decreased from 208 to 200. SK has set a first-stage target of reducing its major subsidiaries to fewer than 200, aiming to improve both financial stability and efficiency.

Chun Changmin, professor of business administration at Seoul National University of Science and Technology, explained, "This is a process of distinguishing between core and non-core businesses based on profitability and strategic importance, and reallocating resources to focus on core industries." Lee Junseo, professor of business administration at Dongguk University, also stated, "The strategy is to secure financial resources by selling highly marketable affiliates."

'No Sacred Cows' in Asset Sales... SKC and Others Also Candidates

SK is also classifying its materials and chemical businesses?which achieved vertical integration 'from oil to fiber' under the late Chairman Chey Jonghyun?as potential divestiture targets, accelerating its 'no sacred cows' rebalancing approach. SKC and its subsidiary SK Nexilis, as well as separator manufacturer SK IE Technology (SKIET), are part of the secondary battery materials business group. However, ongoing losses and lower strategic priority have kept them under consideration for sale.

SKC alone posted an accumulated deficit of 276.8 billion won last year. SKIET also recorded an operating loss of about 290.9 billion won last year. An industry insider said, "These two affiliates are the first to be mentioned as SK's potential sales targets, but their financial structures are so weak that it is difficult to find buyers."

SK On, which is also part of the battery value chain, posted an operating loss of about 1.3789 trillion won last year. However, as it is relatively more downstream-focused, it has been excluded from the sale list. A capital markets expert analyzed, "Even for core businesses, upstream assets with low profitability and poor efficiency relative to investment are being divested first, while downstream competitiveness, such as battery cells, is being intensively fostered." In the market, other companies believed to be on the sale list include low-profit subsidiaries such as Glowide and Speedmate, spun off from SK Networks, as well as unlisted logistics company Korea Chojoun.

Constant asset sales have led to growing anxiety and demoralization among the organization and employees, which is cited as a problem. Another major obstacle is the widening valuation gap in the recent mergers and acquisitions (M&A) market. Many asset sales have reportedly fallen through at the preliminary negotiation stage due to this issue. Korea Chojoun, for example, was put up for sale in mid-2023, but negotiations have collapsed due to price disagreements.

An industry insider commented, "Buyers believe that if they wait a little longer, they can purchase at a much lower price, while sellers are unable to accept such low offers, making it difficult to close deals."