THURSDAY, March 28, 2024
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S Korean tech giants caught in a bind

S Korean tech giants caught in a bind

SOUTH KOREA’S tech giants like Samsung Electronics and SK hynix are increasingly on edge over the ongoing economic brinkmanship between the United States and China, in light of a reported warning from Beijing not to cooperate with the Trump administration’s China ban, according to industry sources on Sunday.

“We will need to step up monitoring the issue,” said an official from one of the major companies based in Seoul. “Companies here will watch the situation closely, hoping to hear from the Korean government.” 
The comment was made after the New York Times reported that the Chinese government had summoned representatives of global tech companies, including Samsung and SK hynix, from South Korea to Beijing and warned of “dire consequences” if they cooperated with the Trump administration’s ban on Chinese firms. The meeting also included representatives of Microsoft and Dell from the US, and Arm from the United Kingdom, the newspaper reported.
Samsung and SK hynix declined to comment, saying that doing so could worsen the situation in which they both find themselves – caught in the middle of escalating trade disputes.
Since the US President Donald Trump’s executive order issued on May 15, barring American companies from using telecommunications equipment manufactured by China’s Huawei, South Korean companies having business ties with the Chinese tech group have been monitoring the situation closely in the hope that it will have no direct impact on their businesses. It is yet to be seen how the order will impact their relations with Huawei. But the South Korean companies are feeling greater tensions in recent days because the Chinese government is putting pressure on their Beijing-based entities. 
Huawei, a manufacturer of telecommunications equipment and mobile devices, is a major customer of South Korean chipmakers Samsung and SK hynix. 
Samsung is engaged in rivalry with the Chinese company in the smartphone market, but it also sells DRAM and NAND flash chips to Huawei. The company is known as one of its five biggest customers, accounting for about 5 per cent of its sales. Huawei accounts for 5 to 10 per cent of SK hynix’s total revenue, according to financial industry forecasts. In the short run, some say the sanctions on Huawei could help Samsung increase its share in the global smartphone market. 
A report by Strategy Analytics said Samsung could ship out around 315 million smartphones this year, easily maintaining the top position with a 23 per cent share. If the sanctions continue, Samsung’s market share could further expand to 24.5 per cent in 2020. “The losses Samsung is facing due to decreased memory chip sales to China could be offset by gains in the smartphone business,” a market watcher said. 
However, some in the South Korean business community fear the possibility of the US-China dispute spiralling into a crisis similar to the so-called “THAAD crisis” of 2017, when South Korean retailers such as Lotte suffered massive losses in China. Chinese consumers boycotted Korean products due to their ire over South Korea’s decision to deploy the US missile defence system. 
“Korean firms as well as the government are in a dilemma, being unable to do anything as they are sandwiched between the US and China,” said a Korean industry insider. “It reminds me of the past THAAD crisis.” 
While the THADD crisis dealt a blow to South Korea’s retail sector, the latest US-China fight seems to be having an impact on its industries as a whole – including the IT, retail and K-pop sectors. 
Due to the trade war between the two superpowers, South Korean semiconductor exports to China plunged 38.7 per cent month-on-month in May, according to data from the Ministry of Trade, Industry and Energy. 
“It is more worrying that if any of our actions [by the Korean government or companies] creates anti-Korean sentiment again like back in 2017, the impact on IT exports will hit the retail and cultural sectors as well,” he said.
 

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