Samsung zigs as others zag, tea leaves suggest

Tech

Published: 22 Oct. 2022, 12:46

Samsung zigs as others zag, tea leaves suggest

A Samsung Electronics manufacturing facility in Pyeongtaek, Gyeonggi[SAMSUNG ELECTRONICS]

Samsung Electronics is doubling down on the chip business as its competitors walk away from the table.

“Right now, we aren't having discussions about reducing capacity,” Han Jin-man, executive vice president at the chipmaker’s memory chip division, noted earlier this month following a question on possible production cuts.

TSMC, Micron, SK hynix and Kioxia have announced capital expenditure or production cuts in the midst of what is shaping up to be a chip glut for the ages.

Samsung Electronics is doing quite the opposite, at least based on a few public comments. The company doesn't normally release capital expenditure guidance, and none has been released for 2022 or 2023. Its direction is divined from occasional remarks from executives.

The world’s largest memory chipmaker seems, based on these comments, to be betting that the semiconductor industry will bounce back soon – possibly next year – and its steady production will translate into higher market share when demand revives.

In its foundry business, the company plans to triple production capacity of advanced chips — chips that are sub-7 nanometers — by 2027.

Kyung Kye-hyun, CEO of the Device Solutions division, which makes semiconductors, called for countercyclical thinking.

"In terms of investment, Samsung Electronics tended to spend more in good times and less in bad times," he told reporters last month.

"But as the business cycle moves at a faster pace, the smaller investment in bad times could translate into bad results in good times," he said, predicting that the industry will rebound in the second half of next year.

“The memory chip cycle is getting short,” Han said during a conference call last October.

The shift is attributed to three factors, according to Han: use of memory chips beyond PCs, the challenge of making high-end chips and improved supply management in the industry.

While the increased use of chips in cars, computing and servers make the demand curve less steep, the increasingly sophisticated manufacturing processes using extreme ultraviolet (EUV) balance oversupply.

“The pandemic brought about a myriad of changes to the world, and the semiconductor cycle moves in a different way than before,” said Lee Seung-woo, head of the research center at Eugene Investment & Securities.

“Following the pandemic, the cyclical pattern weakened with the degree of the monthly changes widening,” Lee wrote in a report released in May.

Hsinchu, Taiwan’s TSMC, which regularly releases capital expenditure guidance, announced a reduction of its 2022 capital expenditure budget by around 10 percent to $36 billion from the previous target of at least $40 billion.

The announcement from the New York Stock Exchange-listed company sent shockwaves through the business, as TSMC is the largest custom chip maker in the world and the biggest semiconductor company by sales.

Boise, Idaho's Micron announced last week that it would cut production of dynamic random-access memory (DRAM) and NAND flash chips. It was first major memory chipmaker to confirm a production cut. Tokyo's Kioxia made a similar announcement, saying it will reduce NAND flash capacity at its Yokkaichi and Kitakami facilities by 30 percent.

SK hynix, the second largest memory chip producer, delayed planned investment into new facilities at Cheongju, although it hasn't announced cuts at existing plants. More specific measures will likely be announced during a third-quarter conference call set for Oct. 26.

“SK hynix is expected to announce ways to adjust output on a meaningful scale during the conference call,” said Wi Min-bok, an analyst at Daishin Securities.

“As DRAM prices are forecast to dip 20 percent in the third quarter and 10 percent in the fourth quarter, its operating profit margin for DRAMs will likely shrink to around 10 percent in the final quarter,” Wi said, adding that the lower profit margin will keep it from spending heavily on capacity expansion.

The analyst predicts the capital expenditure at SK hynix will decrease by 28 percent to 13 trillion won ($9 billion) in 2023.

“Samsung Electronics has distinguished competitiveness in pricing and capability to defend itself from lowering profit compared to competitors,” said Kim Dong-won, an analyst at KB Securities.

As the downturn arrives, a drop in profit is forecast for Samsung Electronics. The company’s operating profit likely sank by 32 percent to 10.8 trillion won in the quarter ended in September, marking the first decline since 2019.

Samsung Electronics will release financial results and breakdowns on Oct. 27.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]