Performance disparities among South Korea's key industries are deepening. While the semiconductor, shipbuilding, and defense sectors are thriving on high profitability, traditional industries such as automotive, steel, and petrochemicals are struggling with declining profits. Concerns are rising that these gaps could lead to a persistent imbalance in the industrial ecosystem, extending beyond mere market conditions to affect profit generation capabilities and future growth opportunities.
According to the industry on October 29, South Korea's economy continued to grow in the third quarter, driven primarily by semiconductors, but the temperature differences among sectors have become more pronounced. The Bank of Korea reported on October 27 that the real gross domestic product (GDP) increased by 3.4% compared to the same period last year, with semiconductors contributing nearly half of this growth. Most profits are concentrated in the semiconductor sector, exacerbating the industrial imbalance.
This disparity is evident in the performance of major companies. Samsung Electronics reported an operating profit of 106.5 trillion won in its Device Solutions (DS) division for the third quarter, accounting for 99.1% of its total operating profit of 107.44 trillion won.
SK Hynix also benefited from the semiconductor boom, posting an operating profit of 83.33 trillion won in the third quarter, driven by increased investments in artificial intelligence (AI) data centers and rising demand for high-bandwidth memory (HBM).
The shipbuilding industry has also continued to perform well. The combined operating profit of South Korea's three major shipbuilders—HD Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries—reached 2.27 trillion won in the third quarter, a more than 30% increase from the same period last year. Orders for high-value ships, such as liquefied natural gas (LNG) carriers, have surged, resulting in a backlog of work for shipyards for several years.
The defense sector is also experiencing growth, bolstered by increased exports. Hanwha Aerospace reported sales of 1.25 trillion won and an operating profit of 21.7 billion won in its ground defense division for the third quarter. As of the end of the third quarter, its order backlog reached approximately 35 trillion won, a 74% increase from about 20 trillion won three years ago in the third quarter of 2023.
In contrast, traditional industries are facing a dual challenge of declining profitability due to low-cost competition from Chinese firms and the burden of future investments. For instance, Hyundai Motor's operating profit margin fell to 5.6% in the first half of this year, down from 7.8% during the same period last year. Research and development expenses increased by 6.0% during this time. As competition intensifies in technology development due to the expansion of electrification and autonomous driving, companies are struggling to raise prices sufficiently, leading to cost-cutting measures that defend profitability.
The steel and petrochemical sectors are also grappling with structural issues stemming from oversupply from China. For example, Hyundai Steel's operating profit margin fell below 1% last year, and SeAH Besteel Holdings reported a 46.4% decrease in operating profit to 14.4 billion won in the third quarter compared to the same period last year.
The concern is that the current performance gap could translate into differences in future competitiveness. Industries experiencing a boom are focusing on strengthening their growth foundations through increased profits, which allow for investment in next-generation technology and facility expansion. In contrast, sectors suffering from declining profitability are increasingly constrained in their investment capabilities, widening the competitive gap among industries.
Seo Yong-gu, a professor at Sookmyung Women's University, stated, "While some companies are achieving operating profit margins nearing 80% due to the semiconductor boom driven by the AI surge, these gains are not translating across the manufacturing sector. The government must actively support policies aimed at recovering domestic demand and addressing industrial imbalances to ensure that the benefits of growth are distributed throughout the national economy."
* This article has been translated by AI.
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