[Editorial] Dashing cold water on the chips

Samsung Electronics is keeping up with investments up to the levels of its robust years despite prospects of a steep down cycle that will devastate its exports and profit. It will borrow 20 trillion won ($16 billion) from its affiliate Samsung Display for this year’s chip investment. It is rare for the big brother of the Samsung family to borrow from a sibling.

Samsung Electronics command cashable assets of over 120 trillion won, but since they are mostly based overseas, it has chosen to borrow from one of its affiliates to save losses in foreign exchange conversion and taxes.

Our chip industry faces the worst times since the Samsung founder declared the company would enter the chip business in February 1983. Analysts project Samsung Electronics will earn an operating profit of around 17 trillion won this year, which would be less than half of last year’s 43 trillion won. The devise solution division handling chip operation is expected to incur losses this year.

The decision to sustain aggressive investment in a money-losing environment underscores the company’s daring entrepreneurship. Samsung Electronics CEO Kyung Kye-hyun said, “This is our last chance to bolster competitiveness. We cannot keep up the lead if we do the same as others,” he told employees.

Chipmakers are struggling to weather the slump and intense competition, but politicians are of little help. The government has submitted a bill to raise the tax credit rate for facility investments in chips and other strategic technologies, but the move has hit a deadlock due to strong opposition by the Democratic Party (DP), claiming it to be favoritism for big companies. The legislature’s special committee on strategic industry replaced independent lawmaker Yang Hyun-ja — a former Samsung Electronics executive who had been eager to promote chip industry — with Rep. Min Hyung-bae who intentionally left the DP to help the party to strip the prosecution of its investigative powers. While the U.S. and Taiwanese governments and parliaments are doing upmost to support their chip industry, the Korean legislature only gets in the way.

Without policy support in tax incentives, infrastructure assistance and subsidies, the effect of corporate investments cannot be maximized, Kim stressed. Politicians must not pour cold waters on Samsung Electronics’ investment drive.