Smartphone Parts Manufacturers Suffer from Poor Performance of South Korean Smartphone Manufacturers

Dec 08, 2017

#So-called ‘$1 billion club’ medium-sized companies that make more than $916 million (1 trillion KRW) in annual sales have disappeared from Smartphone parts industries. This is the aftereffect of South Korean Smartphone manufacturers’ sales have gone downwards after they hit their highest points in 2013.
While growth of Smartphone markets has been stagnant lately, there have been more companies that are seeing their performance drop due to strong pressure towards reduction of unit cost. On top of this, Chinese parts with increased technical skills are benefiting from retaliation on THAAD (Terminal High Altitude Area Defense) and are quickly replacing South Korean parts almost causing total shakeup of foundations of South Korean industries.
According to industries on the 7th, there is not a single South Korean Smartphone parts manufacturer that is expected to make more than $916 million (1 trillion KRW) in sales this year except for large corporations.
It is estimated that Partron and Intops, which started making more than $916 million (1 trillion KRW) in annual sales since 2013, will make between $549 million and $641 million (600 billion KRW and 700 billion KRW) in annual sales this year. Their sales fell sharply by 40% compared to their sales in 2013. Although Partron has been working steadily to join ‘$1 billion club’ again by diversifying its businesses such as sensor modules such as fingerprint recognition modules and automotive electric equipment with its camera module business, which is its major business, at the center, its attempt was foundered.
Intops is seeing its performance become worse little by little after making $962 million (1.05 trillion KRW) in annual sales in 2013. It is estimated that its sales will be below $916 million (1 trillion KRW) this year.

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Camera module manufacturers such as PowerLogics and MCNEX saw their sales grow due to increase in number of demands for dual-cameras others. However it is still difficult for them to join ‘$1 billion club’. Even if their sales continue to grow, they will be able to challenge themselves in joining this club after three to four years. Even this possibility is unclear as Chinese companies continue to come out with cheap products.
‘Chinese risk’ is seen as one of the main reasons why Smartphone parts manufacturers are not able to make more than $916 (1 trillion KRW) in annual sales. Especially aftereffect from retaliation by Chinese Government on THAAD has been a direct hit on many South Korean industries. While many Smartphone part manufacturers have expanded their businesses towards automotive electric device businesses, their sales dropped along with sales of South Korean automotive manufacturers as sales of South Korean cars dropped in China due to aftereffect from THAAD. Fact that markets for Smartphone parts have become ‘red ocean’ due to rapid progress of cheap Chinese products has also acted as a negative factor.
Mid-sized Smartphone parts manufacturers’ slump has caused polarization of markets. Current trend has sales from mid-sized companies leaning towards large corporations. Large corporations such as Samsung Electro-Mechanics and LG Innotec actually saw their performance this year grow by a lot due to differentiated high-value products. On the other hand, mid-sized companies are starting to lose opportunities to supply their products and are facing difficulties.
“Polarization of markets for Smartphone parts has become really severe lately. In the midst of this, many of South Korea’s major mid-sized companies are still doing their businesses based on low and medium-priced products rather than high-value premium products.” said Park Won-jae who is a researcher for Mirae Asset Daewoo. “It is not easy for mid-sized companies to join ‘$1 billion club’ as amount of shipments of Smartphones for this year is only 1.9% and Smartphone markets have reached their maturity where sales price continue to fall.”
“Most of Smartphone parts manufacturers needs to reduce amount of their dependence on large South Korean corporations or Chinese manufacturers.” said a representative for a Smartphone parts industry. “If diversification does not happen for Smartphone markets on top of diversification of products, growth engines of these companies will eventually come to a stop.”
Staff Reporter Park, Sora |srpark@etnews.com

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