ASC 100: Samsung has highest earnings, TSMC best margin

Of the companies in Digitimes' Asia Supply Chain 100 (ASC 100), Samsung Electronics had the highest net income US$22.1 billion in 2020. But TSMC - in third place in overall net income - had the highest net profit margin of 38.7%, way higher than Samsung's 11%. ASC 100 is a new released research on Asia's top 100 tech firms - a study based on the companies' revenues, profit and market cap that will be renewed annually.

The second highest net profit earner is Toyota, earning US$19.1 billion in 2020, followed by TSMC, Sony, and Honda. Three out of the top-5 earners being Japanese manufacturers shows that Japan has the most steady and resilient manufacturing scene in Asia. SK Hynix, Midea Group, Hon Hai Precision Industry (Foxconn), Gree, Saic Motor, Xiaomi, FII Foxconn, and Panasonic are 6th to 13th, respectively, each with net profit of more than US$2 billion. There are four tech product/equipment manufacturers, four consumer electronics vendors, three car makers, and two semi-conductor suppliers in the top 13.

Eight companies - Konica Minolta (Japan), JTEKT (Japan), LG Display (South Korea), FIH Mobile (China), Mitsubishi Motors (Japan), Hyundai (South Korea), Tata Motors (India) and Nissan (Japan) - reported losses for 2020. The pandemic dealt a heavy blow on earnings. Some companies showed a decline in profitability in its core businesses.

Overall, more than 50 companies reported lower profit margins than in 2019, including 17 car makers, nine car parts makers, and 10 machinery suppliers. Out of the 100 companies, there are 24 auto makers, 10 car parts makers, and 10 machinery suppliers. These sectors were faced with disruptions to supply and demand due to the pandemic, and factory shutdown caused by serious shortage of materials. While the current shortage of car chips has yet to ease, Honda reported 10% growth in net profit and kept its decline in profit margin minimal (from 6.9% to 6.7%).

TSMC and Nissan respectively reported the highest and the lowest profit margin at 38.7% and -6.8%, respectively, with a median profit margin of 3.2%. Nearly half of the 100 companies maintained positive profit margin growth. And 10 of them scored a strong double-digit profit margin: TSMC (38.7%), Hikvision (21.1%), Tokyo Electron (16.4%), SK Hynix (14.9%), Gree (13%), MediaTek (12.7%), Murata (11.9%), Longi (11.7%), Samsung (11%), and Dongfeng Motor Corp. (10%).

Source: Companies, compiled by Digitimes, May 2021

Common characteristics: Competitiveness of their products

TSMC is known for its advanced processing technology that no other chip makers can compare to. During the financial crisis in 2008 and 2009, then TSMC chairman Morris Chang took an opposite move when contenders scrambled to reduce capital spending. Chang insisted on increasing R&D spending instead, and the long-term, paramount investment in EUV processing has paid off. TSMC and Samsung are the only two chip manufacturers in the world that are able to produce 7nm chips. TSMC has seen its market share grow to 55%, and has since kept its profit margin high, growing by 6.4pp in 2020 compared to 2019.

Murata also invests heavily in its R&D department. Murata president Norio Nakajima said the company has never thought of cutting back on R&D and they tend to plan ahead for the next 10 years. Murata has started mass-producing all solid-state battery, whose sample battery reportedly has 100 times more capacity than ones previously developed by others. Nakajima also mentioned that China's electronics and component manufacturers are ramping up R&D investment to gain more competitiveness against other leading manufacturers in Asia. However, a surge in profits is mainly attributed to M&A deals that happened last year. Luxshare, to name one, bought Wistron's China-based plants last year.

R&D has become the battlefield for between major chip makers. Samsung spent US$18.6 billion in R&D in 2020, accounting for nearly 10% of its revenue. TSMC spent around US$40 billion (7% of revenue) in R&D, meanwhile announcing that it's bumping up capital spending for 2021 by around 20% to US$30 billion. MediaTek's R&D budget of US$1.7 billion has an even higher share in its revenue than the other two; 14.5% of its revenue went to R&D, increasing by 28.5% on year.

As major economies gradually roll out vaccines and lift restrictions, the most concerned issue by the global market at this moment is whether the shortage of car chips will be solved in the second half of this year. Though the health risks posed by the coronavirus are not yet completely behind us, the earliest and fastest countries to open up and recover will see the strongest rebound in economy, especially the most impacted car-making industry. For the long term, the auto industry cannot neglect other external factors that are shaping a cleaner future. With international pacts over climate change in place, car makers will have to point their direction to building greener, electric and hybrid cars, or even hydrogen cars to achieve net-zero emission; and the clock is ticking. Another deciding factor will be the wrestling between the US and China. Any strategic changes from both governments could lead to mid- or long-term consequences in the industry.

TSMC had the best profit margin in 2020 among the ASC 100 companies.
Photo: Digitimes file photo