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Blue chips spending more to profit

Mar 06,2008
The combined operating income to sales ratio of the 30 largest Korean companies has continued to decline over the past four years, according to Korea Exchange, the local bourse operator. This was mostly due to rising operating expenses for chip makers including Samsung Electronics, analysts said.
In a release of compiled data yesterday, Korea Exchange said that the combined operating income to sales ratio of the 30 biggest firms by market value was 12.8 percent in 2004. It fell to 10.1 percent in 2005, to 8.5 percent in 2006 and to 8.3 percent last year, the exchange said.
Operating income, often used to gauge the soundness of a business, is operating revenue minus operating expenses and depreciation. The smaller the operating income to sales ratio, the more it costs for companies to earn income.
By individual company, Samsung Electronics saw its operating income to sales ratio tumble from 20.9 percent in 2004 to 9.4 percent last year. The chip maker’s operating income to sales ratio for 2005 and 2006 was 14 percent and 11.8 percent, respectively.
It was a steeper fall at Hynix, the world’s second-largest computer-memory maker. The company had an operating income to sales ratio of 31.5 percent in 2004, 24.9 percent in 2005, 24.7 percent in 2006 and 3.1 percent last year.
In contrast, shipbuilders enjoyed solid growth in the operating income to sales ratio thanks to explosive growth in emerging markets, which has created a need for ships to carry exports.
“Given the significant growth in operating income to sales ratio for steelmakers, shipbuilders and construction companies during the same period,” said Han Dong-wook, a strategist at Hyundai Securities, “the decrease in the overall ratio of the 30 largest firms was driven by the sagging performances of chip makers, due to slowing global demand, rather than by high raw material prices or the U.S. subprime crunch.”


By Moon Gwang-lip Staff Reporter [joe@joongang.co.kr]


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