Huawei headquarters in Shenzhen
South Korean companies who view Huawei as a client or China as a major market are in a tough spot following a warning from Chinese authorities. Despite hopes of short-term “reflective gains” in areas including smartphones, the companies are also deeply worried about suffering potential collateral damage in the battle between two superpowers in the US and China.
Samsung Electronics and SK Hynix, which were named as having been “called out” by China’s National Development and Reform Commission (NDRC), signaled a cautious response on June 6, commenting that they could “not confirm” the actions of Chinese authorities. With the Chinese government adding to the pressure already on them after Huawei representatives visited them last month to urge that component supplies were not suspended, the South Korean companies are hard at work developing response measures.
The most complicated situation is the one facing Samsung Electronics. Because Huawei and Samsung Electronics are competitors in the area of smartphones, some are predicting the South Korean company stands to profit from the recent US sanctions against Huawei. The market research firm Strategy Analytics (SA) predicted that if the sanctions continue into the long term, Samsung Electronics’ smartphone shipments this year could reach 315,100,000 units (achieving a top market share of 23%), putting them back over the 300 million line after dropping below it last year. Conversely, Huawei’s shipments were predicted to reach 129,600,000 (9.2%), down from 205,800,000 (14.4%) last year.
Huawei one of Samsung’s biggest clients
Huawei is also one of Samsung Electronics’ five biggest customers – thanks to memory semiconductor supplies. Coming at a time when the slide in DRAM and NAND flash semiconductor prices is deepening, market uncertainties stemming from the US-China conflict stand a strong chance of hitting Samsung Electronics with reduced demand and bargain transactions for “inventory processing” purposes. The market research firm DRAMeXchange recently revised its predictions for the decline in DRAM prices from 10% to 10–15% for the third quarter of 2019 and from 2–5% to as much as 10% for the fourth quarter.
In the area of semiconductors, SK Hynix is seen as being even worse off due to its greater dependence on Huawei and the Chinese market than Samsung Electronics’. Huawei is estimated to account for 10–15% of SK Hynix’s total sales. China’s State Administration for Market Regulation (SAMR) is currently conducting an antitrust investigation against the two businesses and the US company Micron, which together dominate the memory semiconductor market. Concerns are now being raised about what effect the trade war situation may have on this.
During the first quarter, nearly half of SK Hynix’s total sales came from the Chinese market. The company stands to suffer a serious blow if the Chinese government’s warnings of “serious consequences” for cooperating with the US Donald Trump administration come to pass. While Samsung Electronics is expected to enjoy some reflective gains in terms of smartphone sales, it also needs to consider the difficulties of expanding within the Chinese market as the US-China trade war drags on and Chinese consumers adopt increasingly “patriotic” purchasing patterns. In the first quarter, Samsung Electronics just nosed ahead of the 1% mark in its share of the Chinese domestic smartphone market.
Also vulnerable to the effects are LG Innotek and Samsung Electro-Mechanics, which supply parts to Huawei, and LG U+, which acquires 5G mobile communication base station equipment from Huawei.
S. Korean government in caution mode
The South Korean government is in caution mode. An official with the Ministry of Trade, Industry and Energy (MOTIE) said, “We’re cautious about making reference to details for individual business areas.”
“This is a sensitive trade issue, so we’re responding cautiously,” the official said.
The Ministry of Foreign Affairs (MOFA) set up a dedicated organization for US-China trade last month, but no plan has yet been decided for its actual composition. When asked about Huawei in a June 7 meeting with reporters, Blue House Senior Secretary to the President for Economic Affairs Yoon Jong-won said, “There are some areas that companies will need to decide upon independently.”
By Song Gyung-hwa, Hong Dae-sun, and Park Min-hee, staff reporters
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