South Korea Semiconductor Market Cap and Profitability Decline... "Facility Investment Tax Credit Rate Should Be Increased"

Global Semiconductor Companies Market Cap Ranking: Taiwan's TSMC Ranks 1st
Samsung Electronics Drops Two Places to 3rd, SK Hynix Falls to 14th
K-Chips Act Including Increased Facility Investment Tax Credit Rate Pending in National Assembly

[Asia Economy Reporter Kim Pyeonghwa] It has been revealed that among the top 100 global semiconductor companies by market capitalization, only three are Korean firms. While China is rapidly increasing its share in the global semiconductor market and the United States is strengthening government support in the semiconductor sector, the market capitalization rankings and profitability of domestic companies have declined. A representative example is Samsung Electronics, which was the top company by market capitalization in 2018 but remained only third this year.

On the 24th, the Federation of Korean Industries (FKI) announced these results after comparing the management indicators of the top 100 semiconductor companies by average market capitalization from January to September this year. The FKI advised that the government should support the strengthening of domestic companies' competitiveness by raising the tax credit rate for facility investments.

Among the Top 100 Semiconductor Companies by Market Capitalization, China Has 42 Companies

According to this FKI survey, China is rapidly expanding its influence in the global semiconductor industry. In fact, among the top 100 semiconductor companies by market capitalization, Chinese companies accounted for 42. This number is comparable to the total of semiconductor companies from Chip4 member countries (48 companies). Among the top market capitalization rankings are numerous companies such as ▲SMIC (28th, 5th largest foundry worldwide) ▲TCL Zhonghuan New Energy (31st, solar and semiconductor materials) ▲Qingguang Guoxin (32nd, IC chip design and development) ▲Will Semiconductor (38th, 9th largest fabless worldwide).

Although Chinese companies were relatively small in scale, they rapidly rose due to a large domestic market and government policy support. The compound annual growth rate of Chinese companies' revenue from 2018 to last year was 26.7%, about 3.3 times higher than that of non-Chinese companies (8.2%). Since the semiconductor cycle typically lasts 4 to 5 years, financial indicators were examined based on a 4-year moving average. The ratio of capital expenditure to operating cash flow for Chinese companies last year was also 124.7%, 2.6 times that of non-Chinese companies (47.7%).

The global market capitalization rankings of domestic semiconductor companies all declined. Looking at market capitalization from 2018 to this year, Samsung Electronics dropped 2 places, and SK Hynix fell 4 places. Samsung Electronics was the global semiconductor market cap leader in 2018 but recently slipped to 3rd place behind Taiwan's foundry company TSMC and U.S. fabless company Nvidia. SK Hynix was ranked 10th in 2018 but rose to 14th this year.

Korea's net profit margin on sales decreased by 1.9 percentage points from 16.3% in 2018 to 14.4% last year. In contrast, the U.S. increased profitability by 3.9 percentage points, Japan by 2.0 points, and Taiwan by 1.1 points over the same period. Although semiconductors accounted for one-fifth (19.9%) of Korea's exports last year, making it a representative domestic industry, its competitiveness in terms of market capitalization ranking and profitability lagged behind global standards.

Domestic Corporate Tax Burden Rate Highest Among Chip4 Countries

Korea's capital expenditure relative to operating cash flow (cash assets generated from operating activities) was 63.1% last year, the highest among semiconductor companies in the Chip4 group. Since domestic companies focus on semiconductor production, they have competed to improve productivity and reduce production costs through investment in the latest facilities. In fact, Samsung Electronics and SK Hynix invested a total of 48 trillion won in facilities last year alone. The ratio of capital expenditure increased by 3.3 percentage points from 2018 to last year.

Korea's research and development (R&D) investment relative to sales was 8.3% last year, the lowest among Chip4 countries. This result is because domestic companies have a higher proportion of memory and foundry businesses rather than fabless, which tend to invest more actively in R&D. However, domestic companies' R&D investment increased by 1.2 percentage points compared to 2018.

The corporate tax burden rate for domestic semiconductor companies was 26.9% last year, the highest among Chip4 countries. This is about twice that of the U.S. (13.0%) and Taiwan (12.1%). The FKI emphasized that Korea's corporate tax burden rate was already high at 25.5% in 2018 and increased by 1.4 percentage points over three years. In contrast, the U.S. reduced its corporate tax burden rate by 3.4 percentage points from 2018 to last year due to tax cuts such as those under the Donald Trump administration. Taiwan's corporate tax burden rate has been the lowest among Chip4 countries for four consecutive years.

Yoo Hwan-ik, head of the FKI's Industrial Headquarters, said, "Major countries spare no effort at the national level to attract investment and support to dominate the semiconductor industry," adding, "For Korea to maintain its semiconductor industry superiority, it is necessary to implement aggressive policies such as raising the tax credit rate for facility investments to 25% like the U.S."

Earlier this year, the Korean government enacted the National Advanced Industry Act, setting the tax credit rate for facility investments in semiconductors at 6% for large corporations. However, since the U.S. established a tax credit rate of about 25% for facility and equipment investments through the Chips and Science Act (CSA) in July, Korea's support is insufficient compared to competing countries. Domestically, the Semiconductor Industry Competitiveness Enhancement Act (K-Chips Act), which would raise the tax credit rate for facility investments to 20%, has been proposed but remains pending in the National Assembly.

This content was produced with the assistance of AI translation services.