As semiconductor and display industries had gone through a slump during the first half resulting in less investments, performance of South Korea’s major equipment manufacturers plummeted. Although major manufacturers such as SEMES, WONIK IPS, and TES had recorded steady performance as Samsung Electronics had consistently invested into memory semiconductor, they suffered significant losses during the first half due to continuous delay in schedule for semiconductor investments and reduced memory price. Companies that are highly dependent on displays struggled this year again just like last year. As Samsung Display made a huge investment into its A3 plant, other companies that started to gain interests suffered a huge downward trend. TOPTEC and ICD went into deficit in the first half of this year.
◊South Korean semiconductor equipment manufacturers suffer due to reduced semiconductor investments
South Korean semiconductor equipment manufacturers recorded poor performance in the first half as Samsung Electronics and SK Hynix, which are their major customers, had been conservative towards investments in plant and equipment.
SEMES, which was ranked first last year based on sales, recorded a loss for two quarters in a row. It recorded $37.1 million (45 billion KRW) in operating loss in the first half and went into deficit and saw its operating profit drop by 128.6% compared to the first half of last year. Although amount its sales from semiconductor equipment, which is responsible for most of its sales, in the first half of 2018 was $665 million (805.4 billion KRW), the amount for this year’s first half was only $132 million (159.4 billion KRW) that is 80.2% reduction.
Hanmi Semiconductor, which has SK Hynix and a Chinese semiconductor device manufacturer as its major customers, suffered a loss in the first half as well. It recorded $1.16 million (1.41 billion KRW) in operating loss in the first half. Its performance dropped by 98.34% as it recorded $29.3 million (35.567 billion KRW) in operating profit in the first half of last year.
KCTech, which manufacturers CMP (Chemical Mechanical Planarization) equipment that makes semiconductor wafers flat, saw its first-half operating profit, which was $17.5 million (21.2 billion KRW), drop by 44.3% compared to the first half of last year.
Besides these companies, other manufacturers such as WONIK IPS, Global Zeus, TES, Jusung Engineering, and UniTest that had enjoyed booming of semiconductor industry until last year saw their operating profits drop by 70% at the most.
Semiconductor equipment manufacturers expected to see their performance drop as positive cycle of semiconductor industry started to let up at the end of last year. However, they are having a difficult time getting out of their current slump due to slow recovery of DRAM market and unexpected worsening of international situations.
Representatives from the industry believe that the current trade war between the U.S. and China is the main reason for their poor performance. They see that situations on South Korean companies, which are based on back-end process, have gotten worse as there have been less demands from Chinese companies.
“Although Chinese semiconductor manufacturers such as YMTC, JHICC, and Innotron were trying to mass-produce semiconductor chips since end of last year, they stopped their production due to a sanction imposed by the U.S. Government.” said a representative for the industry. “Because it has become difficult to deliver equipment to Lam Research and Applied Materials as well, manufacturing of back-end process equipment has been postponed completely.”
Fact that demands for DRAMs and NAND flash memories are not recovering well is another issue. South Korean equipment manufacturers make most of their sales from Samsung Electronics and SK Hynix. When Samsung Electronics and SK Hynix struggle due to lack of demands for DRAMs, equipment manufacturers are heavily affected as they have limited customers.
For example, SEMES supplies most of its equipment to Samsung Electronics. Because its sales are heavily dependent on single source, it is heavily affected by Samsung Electronics’ performance and Samsung Electronics’ direction for its investment in plant and equipment.
However, there is a company that made a progress despite difficult conditions. STI made $10.7 million (13 billion KRW) in operating profit in the first half and saw its operating profit grow by 3%. Its main equipment is CCSS (Central Chemical Supply System) and it supplies CCSS to Samsung Electronics and SK Hynix.
“CCSS is an equipment that is installed before other equipment is brought into a fabrication facility.” said a representative for STI. “Samsung Electronics purchased our CCSS when it was constructing EUV (Extreme Ultraviolet) line in Hwasung.”
◊Display equipment manufacturers still having a hard time despite investments from Chinese companies
Display equipment manufacturers that had suffered during last year due to reduced investments from Samsung Display and LG Display faced similar situation in the first half as they were not able to find new opportunities. Although they found opportunities for the second half as Chinese companies started to make heavy investments starting from the second quarter, their first-half performance was poor.
TOP Engineering, which was ranked first in the first half based on performance, saw its performance grow due to the growth of its camera module subsidiary called PowerLogics. Its sales and operating profit were $551 million (668.1 billion KRW) and $71.5 million (86.6 billion KRW) respectively and they increased by 49.1% and 48.2% respectively compared to the first half of last year. PowerLogics’ sales and operating profit were $462 million (560.5 billion KRW) and $24.8 million (30.1 billion KRW) respectively and they increased by 64% and 258.1% respectively. Although TOP Engineering saw its performance from other areas drop, its overall performance was positive due to sudden growth of PowerLogics.
SFA was able to minimize the damage as it was able to actively obtain orders for clean logistics equipment system for displays and other equipment from Chinese companies starting from the second quarter. Its sales and operating profit were $551 million (668 billion KRW) and $73.6 million (89.2 billion KRW) respectively and they decreased by 14.2% and 20.2% respectively compared to the first half of last year.
SEMES made $33.3 million (40.4 billion KRW) in operating profit from its display equipment business in the first half. This amount is 47.2% lower than how much it made in the first half of last year which was $63.2 million (76.6 billion KRW). It supplies LCD equipment to Samsung Display and it supplied less than usual in the first half due to a setback within Samsung Display’s LCD business. SEMES has been looking into selling its businesses other than parts of its display equipment business.
Although AP System, which is struggling due to reduced investments from Samsung Display, is increasing amount of exportation to Chinese companies, it has yet to rebound due to a slump within the industry and absence of opportunities for domestic investments. Its sales and operating profit were $191 million (231.9 billion KRW) and $11.6 million (14 billion KRW) respectively and they decreased by 30.2% and 28.9% respectively compared to the first half of last year.
DMS, which achieved its best annual performance last year by having its business centered on Chinese market, also saw its performance suffer in the first half. Although its sales and operating profit were $79.5 million (96.3 billion KRW) and $9.24 million (11.2 billion KRW) and they decreased by 34.8% and 22.2% respectively, amount of reduction of its sales and operating profit is not much compared to other companies.
Companies that made sudden growth in a short period of time as Samsung Display had carried out large-scale investments are continuing to go through a difficult time. TOPTEC, which had drawn attention by supplying lamination equipment, went into deficit in the first half by making $3.55 million (4.3 billion KRW) in operating loss after making $11.7 million (14.2 billion KRW) in operating profit in the first half of last year.
ICD, which had grown its business by supplying many dry etching equipment for OLED to Samsung Display over WONIK IPS and Tokyo Electron, went into deficit in the first half by making $2.64 million (3.2 billion KRW) in operating loss after making $18.6 million (22.6 billion KRW) in operating profit in the first half of last year. Its sales were $37.8 million (45.8 billion KRW) and they were reduced by 64.8%.
On the other hand, Dong A Eltek and AVACO that are major partners of LG Display saw their operating profits grow by 75.8% and 127% respectively.
Although Dong A Eltek, which supplies display inspection equipment, saw the performance of its subsidiary Sunic System that supplies deposition equipment for small and medium displays drop, its overall performance grew by supplying inline inspection equipment for small and medium OLEDs and inspection equipment for LCDs that are bigger than 75 inches to Chinese companies. There were increased demands for high-performance inspection equipment from Chinese companies that are looking to improve the quality of their panels. AVACO saw its performance improve by exporting more sputtering equipment, which is the main source of its sales, to Chinese companies.
Staff Reporter Bae, Okjin | withok@etnews.com & Staff Reporter Kang, Hyeryung | kang@etnews.com