Lee Jae-yong and Chey Tae-won, Korea's 'Semiconductor Duo,' Head to China... What's the Status of Local Operations?

[Korea Financial Times, Gwak Horyung] Lee Jae-yong, Chairman of Samsung Electronics, and Chey Tae-won, Chairman of SK Group, who lead South Korea's memory semiconductor business, are visiting China as part of an economic delegation. With regional strategies shifting moment by moment due to the US-China hegemony war, how to operate production bases in China where tens of trillions of won have been invested has become critical. The US government has deferred tariffs on Chinese semiconductors and allowed conditional exports of NVIDIA AI accelerators, leading to assessments that opportunities persist amid this "strategic balancing act."

While SK hynix is posting record-breaking performance riding the "semiconductor boom," there are clear temperature differences among overseas subsidiaries. SK hynix America, the US sales subsidiary, recorded cumulative sales of KRW 40 trillion through the third quarter of last year, growing more than five times compared to two years ago (KRW 7.78 trillion). During the same period, sales at the Wuxi, China sales subsidiary increased 1.9 times from KRW 5.3 trillion to KRW 10 trillion, but recorded slight negative growth year-over-year last year. This is interpreted as the result of big tech companies with active demand for high-bandwidth memory (HBM) for AI being concentrated in the United States.

SK hynix's China operations appear to have contracted due to the US government's semiconductor regulations against China. Until recently, the US prohibited the import of American semiconductor equipment and parts into Chinese factories. The Wuxi manufacturing subsidiary responsible for SK hynix's China DRAM production and the Chongqing semiconductor packaging subsidiary saw sales decrease by 18% and 16%, respectively, last year compared to two years ago.

Although its share has decreased due to geopolitical risks, China remains an important base for SK hynix. Chairman Chey Tae-won of SK Group, who is accompanying President Lee Jae-myung on his visit to China as part of an economic delegation, held a Korea-China Business Forum where business leaders from both countries gathered on the 5th. Opening the forum, held for the first time in nine years, in his capacity as Chairman of the Korea Chamber of Commerce and Industry, Chey emphasized, "Let's respect our differences but prioritize seeking common goals and interests."

Samsung Electronics faces similar circumstances. Samsung Electronics' DS (Device Solutions, semiconductor) division has the Shanghai sales subsidiary (SSS), Xi'an NAND manufacturing subsidiary (SCS), and Suzhou packaging subsidiary (SESS).

SSS and SCS saw their performance decline by double digits year-over-year last year. SSS recorded cumulative sales of KRW 20.6 trillion and operating profit of KRW 311.2 billion through the third quarter of last year, decreasing by 13% and 14%, respectively. During the same period, SCS saw sales of KRW 6.6 trillion and operating profit of KRW 702.3 billion, down 23% and 20%.

Analysts suggest that the recent US government decision to open the door for NVIDIA to supply AI accelerator "H200" to China could present an opportunity for Samsung Electronics. The H(opper)200 applies the previous generation architecture. It is known to be equipped with HBM3E. It is anticipated that this could be an important opportunity for Samsung Electronics, which entered the market late due to delays in NVIDIA's HBM quality certification, to expand related sales.

Gwak Horyung (horr@fntimes.com)