Samsung Electronics playing game of chicken in memory chips

Visitors wait in a line to attend the ″Semicon Korea 2023″ exhibition at Coex exhibition center, southern Seoul, on Feb. 1. [NEWS1]

Samsung Electronics is playing a game of chicken in the memory chip business, investing into a downturn to drive out competition that may not have the deep pockets, or the will, to hold on through a period of low profits or big losses.

The game has been played in the past, reducing the number of players in the market.

Things may be different this time, as the current memory market is larger in size but with fewer companies making the chips.

Seoul National University materials science professor Hwang Cheol-seong said that companies are unlikely to pick a fight, because the semiconductor ecosystem, formed by materials, parts and equipment makers, may collapse if more players are knocked out. Risks outnumber rewards, according to Hwang.

The chicken game in memory semiconductors eliminated several companies in the past. Intel withdrew from the business in 1986 due to flooding of supply from Japanese companies like Toshiba, Fujitsu and NEC.

In 2009, Germany’s Qimonda, which was then ranked number two in the world, went bankrupt after massive supply from Taiwanese companies in 2007 drove down memory prices.

Micron acquired Japan's Elpida, which was then ranked number three, in 2013 after Elpida lost the game against Taiwanese players. It's been a stalemate ever since.

Samsung Electronics has played the game well in the past. It absorbed big losses in the early days, but the decision to go against the market norm to increase production earned the chipmaker the top place in 1993.

In the current slump coming from plummeting memory semiconductor prices and demand, the company with the biggest market cap in Korea has no plans to cut back on its investment.

“This may be the final chance to stretch the gap between our company and our competitors,” Samsung Electronics device solutions CEO Kyung Kye-hyun said in a business session with employees on Feb. 1. “We shouldn’t be content with a 40 percent market share, nothing is stopping us from reaching 90 percent like Intel’s CPU.”

The company's operating profit for semiconductors in the fourth quarter of last year plunged by 97 percent on year, and SK hynix’s quarterly earnings turned red. Experts say Samsung Electronics is in the worst crisis in 40 years since late founder Lee Byung-chul steered it towards the semiconductor business in 1983.

The semiconductor industry in general is frozen. Memory, which Korean chipmakers like Samsung Electronics and SK hynix focus heavily on, is buffeted by the coldest snap in 13 years.

Prospects for memory semiconductors look dull in the short term, but may brighten up in the second half with higher demand.

“Intel’s new CPU for next-generation servers that adopts DDR5 will tow the demand,” Korea Semiconductor Industry Association senior executive director Ahn Ki-hyun said. “Artificial intelligence such as ChatGPT that requires a lot of data processing will also increase demand.”

More than 450 businesses and 60,000 visitors showed up to Semicon Korea 2023 at Coex, southern Seoul, which ran for three days from Feb. 1.

“I’ve never seen such a crowd even before Covid-19,” a spokesperson for a semiconductor equipment company who has attended the exhibition for 15 years said. “I think this ironically indicates the tough times in the semiconductor market, with people desperate for something to look forward to.”

BY PARK HAE-LEE, KO SUK-HYUN [sohn.dongjoo@joongang.co.kr]