SK Hynix eyes raw material risks, LG Electronics bets on AI and smart factories

South Korea's electronics industry is racing to secure new growth engines, riding a wave of demand for semiconductors and AI. But significant challenges remain.

Supply chain uncertainty has dragged on, driven by geopolitical risks worldwide and lingering trade tensions. Technology competition is also intensifying, with many companies scrambling to commercialize emerging fields such as robotics and agentic AI.

Against this backdrop, major South Korean electronics firms have been turning to outside consultants to navigate the uncertainty — a trend now visible through non-audit service contracts disclosed in their corporate governance reports.

According to the Financial Supervisory Service, SK Hynix signed a "raw material price market research service contract" with Samjong KPMG from March through late April, spending roughly 200 million won ($132,000) on the consulting work.

Companies listed on the Korea Exchange are required to disclose non-audit services received from their external auditors in annual corporate governance reports. Non-audit services refer to consulting, advisory and tax work that auditors provide outside their core audit function. To preserve auditor independence, only advisory work that poses no risk of compromising that independence is permitted. Samjong KPMG has been appointed as SK Hynix's external auditor through 2028.

SK Hynix had previously engaged Samjong KPMG for raw material price consulting in November 2024, meaning the company signed a contract of similar scope again roughly 16 months later.

"Many of the services we commissioned required an in-depth understanding of the semiconductor industry and its unique business characteristics," SK Hynix said in its disclosure. "We therefore worked with our external auditor, which has a strong grasp of the semiconductor sector."

Raw material volatility in the semiconductor market has been worsening. When the prospect of a war between the United States and Iran became real earlier this year, concerns emerged over potential disruptions to key material supplies — particularly bromine, for which imports from Israel are dominant, and helium, which South Korea sources primarily from Qatar.

The issue came up during SK Hynix's first-quarter earnings conference call.

Kim Woo-hyun, SK Hynix's chief financial officer, said at the time that the company was "fully aware of the raw material and energy supply risks stemming from geopolitical shifts, drawing on experience from past international conflicts," and that countermeasures were already in place. He added that SK Hynix had completed diversification of its supplier base for key industrial gases including helium and bromine, and had secured sufficient inventory levels.

Even short of a worst-case supply disruption, swings in raw material prices directly affect the company's profitability, given how large a share procurement costs represent in total manufacturing expenses. The consulting engagement reflects an effort to optimize purchasing strategy through proactive market research.

LG Electronics has not signed any non-audit service contracts with its auditor, EY Han Young, so far this year, but the company received multiple advisory services from EY Han Young affiliates through the end of last year.

The consulting focused mainly on adopting new technologies such as AI and smart factories. In November last year, LG Electronics received a preliminary advisory from EY Consulting on AI-based product management. In September of the same year, it engaged consultants to help set the strategic direction for its smart factory operations.

LG Electronics is in the midst of transforming itself from a home appliance maker into an AI and robotics company, in line with the broader group's strategy to deepen its AI capabilities. Smart factories are another area the company is aggressively developing, building on seven decades of manufacturing expertise. LG Electronics has set a target of 1 trillion won in sales from its smart factory business by 2030. Both the AI-based product management review and the smart factory strategy work are directly tied to the company's overall direction.

The filings also hint at the company's thinking on overseas expansion. In December last year, LG Electronics received tax advisory from Ernst & Young China on establishing a new local subsidiary.

LG Electronics set up a research and development subsidiary in Nanjing — Nanjing LG Electronics R&D Co., Ltd. — in the first quarter of this year. The tax advisory is believed to have been part of the preliminary groundwork ahead of that entity's establishment.