Samsung Still Keeps Up The Motion of Chip Investment

Gita Fitria Ramadani . January 10, 2023

Picture: daily sabah

Techspace – As a weaker global economy impacted memory chip prices and stifled demand for electronic devices, Samsung Electronics reported that its quarterly profit fell by two-thirds to an eight-year low.

As stated by Reuters, analysts anticipate that Samsung's profit will decrease once more in the current quarter. This comes after the South Korean company announced that its operating profit for October through December could drop by 69% to 4.3 trillion won ($3.37 billion), down from 13.87 trillion won a year earlier.

Despite a decline in profit for Samsung Electronics and the retreat of rivals like TSMC due to an industry downturn, the company's investment in semiconductors shows no signs of slowing down.

The most valuable company in South Korea reported on Friday that operating profit likely fell 69% year-over-year in the October-December quarter, falling below market expectations by 38% and to levels not seen since the same period in 2008

Samsung said in a separate statement that the poor outcome was caused by a drop in memory demand that was "greater than expected." In most cases, Samsung only provides numbers in its initial earnings guidance, but the company wanted to calm investor concerns.

Samsung's revenue comes from semiconductors only about 30% of the time. Nonetheless, its other businesses, including appliances and smartphones, could not offset the decline in chip prices.

In December, after falling for the eighth month, wholesale prices for DRAM, used in personal computers and servers, were down by more than 40% year-over-year. Compared to the previous quarter, the benchmark for NAND flash memory, which is utilized in smartphones and other devices, decreased by 14% between October and December.

As smartphone and computer sales decline, chip stocks are mounting across the supply chain, according to Nikkei Asia. According to a source at one chip distributor, the business has stalled.

"Until the three headwinds subside, consumer spending won't fully recover: the Covid, Russia, and expansion," Akira Minamikawa stated at British research company Omdia. Several manufacturers of memory chips are reducing capital expenditures in response to this slump.

Sanjay Mehrotra, CEO of Micron Technology, stated last month that there was a significant supply-demand imbalance in both DRAM and NAND. He noted that his company would reduce capital expenditures by approximately forty percent for the fiscal year that begins in August.

Samsung's rival in South Korea, SK Hynix, said in 2023 that it would cut capital spending by more than 50%, while Kioxia Holdings in Japan plans to cut output. A global leader in contract chip manufacturing, Taiwan Semiconductor Manufacturing Co., announced that it would also reduce investments.

On the other hand, Samsung is sticking to its plans for investing. According to multiple suppliers, the company continues to acquire new equipment, primarily for cutting-edge chips.

The business has stated that it will continue to prepare for a medium to long-term market recovery. Samsung has a history of investing under challenging circumstances. Investing during low times to compete with rivals during the subsequent boom has dominated the global memory market for years.

Samsung can negotiate favorable prices and delivery times with suppliers because it invests when few others are. To catch up to TSMC in terms of cutting-edge chips, Samsung is eager to acquire advanced chipmaking equipment in the face of fierce competition.

Samsung has a chance to avoid potential threats from up-and-coming Chinese rivals like Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Corp. thanks to tighter U.S. restrictions on Chinese semiconductor companies.

In the interim, the government of South Korea has offered assistance. Tuesday, it announced plans to increase the tax deduction for capital expenditures in strategic technology, such as batteries and semiconductors, from 8% to 15%.

Samsung has continued to expand its Pyeongtaek chip production complex rapidly. Just a few months after a third plant was announced to have gone online in September, the structure of its fourth plant there is getting closer to completion. The campus is expected to eventually house six extensive manufacturing facilities, making it the largest chipmaking hub in the world.

The size of Samsung's war chest makes its strategy possible. As of the end of September, Samsung had around 128.8 trillion won, or $101 billion, in cash. This is about ten times more than its rivals, SK Hynix and Micron, but the numbers cannot be directly compared because different accounting standards are used.

However, a prolonged demand decline for semiconductors could weaken Samsung's seemingly solid position. The war in Ukraine and interest rate hikes in the United States and Europe have impacted global investment and consumption. One more memory chip supply glut could be fueled by Samsung's increased production, one of the world's largest chipmakers.

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