South Korea’s consumer-electronics industry is facing an unusual problem: the very semiconductor boom that has helped fuel the country’s technology sector is becoming a growing burden for its smartphone, television and appliance businesses.
As memory-chip prices surge amid a new semiconductor upcycle, manufacturers such as Samsung Electronics and LG Electronics are paying significantly more for critical components at a time when consumers are cutting back on discretionary spending. The result is a widening gap between rising production costs and weakening demand—an increasingly difficult equation for some of the country’s largest electronics exporters.
Corporate filings released on June 1 illustrate the challenge.
Samsung Electronics said raw-material purchases, excluding its display business, rose to roughly $20 billion in the first quarter, up 2.8% from a year earlier. The increase was driven less by higher production volumes than by rapidly rising semiconductor prices.
For the first time, Samsung separately disclosed procurement spending on mobile DRAM and NAND flash memory, underscoring the growing importance of memory costs within its consumer-electronics operations. The company said average mobile-memory prices were approximately 107% higher than last year’s average level.
Samsung spent an estimated $1.4 billion on mobile memory during the quarter, accounting for nearly one-tenth of procurement expenses within its Device eXperience division, which oversees smartphones, televisions and home appliances.
The figure does not include memory supplied internally by Samsung’s semiconductor business, suggesting the total cost impact is likely even larger.
Other key components are becoming more expensive as well. Prices for smartphone application processors rose about 12% from a year earlier, further squeezing margins.
LG Electronics is confronting a similar situation.
The company’s purchases of semiconductors for television and display products increased 19.4% year-over-year in the first quarter, while prices for video-device chips climbed 33.1%.
At the same time, rising commodity costs are adding another layer of pressure. Copper prices rose 21.1% from a year earlier, sharply increasing manufacturing costs for LG’s heating, ventilation and air-conditioning business, where copper now accounts for more than half of raw-material spending.
Ordinarily, electronics manufacturers can offset higher component costs through strong sales growth. That strategy is proving harder to execute in today’s environment.
According to government retail data, appliance sales in South Korea declined 5.8% in the first quarter compared with the same period three years earlier. Sales of communications devices and computers fell 4.2% as consumers postponed upgrades and major purchases amid persistent inflation and elevated borrowing costs.
The mismatch between rising input costs and slowing consumer demand is emerging as one of the biggest challenges facing South Korea’s electronics sector.
The problem has been compounded by supply-chain uncertainty and higher transportation expenses linked to ongoing instability in the Middle East, adding further inflationary pressure across global manufacturing industries.
For Samsung and LG, the irony is difficult to ignore. The semiconductor industry remains one of South Korea’s greatest economic strengths, helping drive exports and corporate profits. Yet for their consumer-electronics divisions, soaring chip prices are increasingly becoming a headwind rather than a tailwind.
Whether the sector can regain momentum may depend on two factors largely outside manufacturers’ control: how long the semiconductor price rally continues and whether consumers regain the confidence to spend during the second half of the year.
