Smartphone industry declining in importance to South Korean economy

Posted on : 2018-04-09 18:10 KST Modified on : 2019-10-19 20:29 KST
SK companies are falling behind firms from China and the US in the global market
Share of global smartphone market and Chinese smartphone market
Share of global smartphone market and Chinese smartphone market

With an increasing percentage of South Korean smartphones being produced overseas, smartphones, despite being one of the country’s leading export products, are fading as one of the country’s major industries, a new report says. There are also concerns that the country’s competitive semiconductor and display industries will be affected by oversupply, lower profitability and a reduced market share within the next two or three years.

According to a report titled “Crisis in South Korea’s Main Industries and Solutions” published by the Hyundai Research Institute (HRI) on Apr. 8, the smartphone industry “is unable to serve as a major industry in South Korea because of the decline in its market share and the rapid increase in the percentage of smartphones produced overseas. There are clear indications that South Korean smartphone manufacturers are falling behind emerging companies in China and US companies in the global market.”

Strategy Analytics, a company that analyzes the global smartphone market, said that South Korea’s share of the global market in smartphones has been on a steady decline since it reached 22.2% in 2015 and predicted that it is likely to hover just above 19.5% this year. In contrast, the global market share of Huawei, Oppo and Vivo, three Chinese smartphone brands, has been rapidly rising during the same period, from 10.5% to 18.4%. South Korean smartphones’ share of the Chinese market has been in a nosedive, from 19.7% in 2013 to 1.7% in the fourth quarter of last year. Products by the three aforementioned Chinese brands along with Xiaomi, another Chinese brand, held a 48.7% share of the Chinese market in the fourth quarter of last year.

2017 share of global memory semiconductor and system semiconductor market
2017 share of global memory semiconductor and system semiconductor market

“Since the percentage of South Korean smartphones being produced overseas rapidly increased from 15.9% in 2010 to 91.3% in 2017 and since the production of parts is being localized as well, the smartphone industry is dropping out of the ranks of South Korea’s major industries,” HRI said.

Amid delays of upgrades to key products in the semiconductor industry, which is currently the most competitive of South Korea’s major export industries, there are concerns that this industry will also face weakening profitability amid a global supply glut and a shrinking market share over the next couple of years. In terms of semiconductor categories, South Korea controls 62% (around US$80.7 billion) of the global market (US$130.2 billion in 2017) for DRAM and NAND semiconductor memory but just 4% (about US$9 billion) of the global market in the much larger category of system semiconductors (US$230.4 billion).

“Chinese companies are expected to break into the market for semiconductor memory, a major South Korean product, within the next two or three years, which is prompting concerns about declining market share and worsening profitability resulting from an oversupply,” HRI said.

And in the display industry, the main export product of liquid crystal displays (LCD) has seen export value and trade surplus rapidly falling amid stronger global competition and lower export prices. The export value of LCDs has continued to trend downward, from US$32.3 billion in 2010 to US$18.1 billion in 2017, while imports have risen sharply. As a result, the LCD trade surplus has been cut in half, from US$27.5 billion in 2010 to US$13.2 billion in 2017.

“Admittedly, South Korean companies have an absolute competitive advantage in the high value-added product of OLED [organic light-emitting diode], which has had a remarkable impact on exports and the trade balance. But China’s concentrated investment in OLED suggests that competition is likely to heat up when Chinese products begin to hit the market within the next five years,” HRI said. OLED’s export value has been increasing rapidly, from US$1.12 billion in 2010 to US$9.22 billion in 2017.

By Cho Kye-wan, staff reporter

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