Samsung Electronics taps subsidiary for $16 billion chip funding

Samsung Electronics' manufacturing complex in Pyeongtaek, Gyeonggi [SAMSUNG ELECTRONICS]

Samsung Electronics will borrow 20 trillion won ($15.6 billion) from Samsung Display to help in the funding of semiconductor investments.

The board of the electronics maker approved the decision on Feb. 14, following a nod by the panel supplier’s board on Feb. 10, according to electronic disclosures. Samsung Display is 84.8 percent owned by Samsung Electronics. The loan will come into effect starting Feb. 17.

The money will be used to invest into equipment and manufacturing processes for high-end chips at a time when the chipmaker is facing lower profitability amid a severe downturn in the semiconductor industry.

“Samsung Electronics decided on the unusual short-term borrowing, because the company is committed to maintaining chip investment as opposed to other global chipmakers cutting back on investment,” the company said in a statement.

The chipmaker warned of tough times ahead, which will weigh in its financial capabilities for manufacturing investment.

“This year, Samsung Electronics will likely be left with limited financial capacity with lower operating profit, affected by a global economic slowdown and downcycle in the chip industry,” the company said, “However, Samsung Electronics tapped into ‘emergency method’ of borrowing from a subsidiary to prepare for future demand and ensure technological supremacy.”

Samsung provided no guidance for its capital expenditure this year, but facility investment for memory chips will remain in the similar range as last year, according to the statement.

The company invested 47.9 trillion won last year to upgrade its chip manufacturing facilities.

“Samsung Electronics hasn’t yet decided on 2023’s capital expenditure,” it said, “But the memory chip business will maintain the similar size of investment as last year and the foundry business will continue its investment intended to ramp up production at our factories in Pyeongtaek, Gyeonggi and Taylor in Texas, meeting demand for advanced manufacturing processes.”

The Suwon, Gyeonggi-based company's operating profit declined 69 percent in the fourth quarter and missed the consensus estimate. It is the worst quarterly result in eight years.

Analysts project that the first quarter could be more difficult for the chipmaker, with some anticipating a loss for the chipmaking division.

The interest rate for the lending stood at 4.6 percent with a maturation date set for Aug. 16 in 2025.

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