DRAM wholesale prices fell more than 40% year-on-year for the eighth consecutive month in December. (Samsung pic)
SEOUL: Samsung Electronics’s semiconductor investment shows no signs of letting up even as its profit takes a hit and rivals like TSMC pull back in response to an industry downturn.
South Korea’s most valuable company said Friday that operating profit likely plunged 69% on the year in the October-December quarter, underperforming market expectations by 38% and suffering its worst drop since the same quarter in 2008.
In a separate statement, Samsung attributed the poor result to a drop in demand for memory that was “greater than expected”. Normally, Samsung’s initial earnings guidance provides only numbers, but the company said it wanted to ease investor concerns.
Semiconductors account for only about 30% of Samsung’s total revenue. Still, its other businesses like smartphones and appliances were unable to offset the plunge in chip prices in recent months.
Wholesale prices for DRAM, used in personal computers and servers, were down more than 40% on the year in December after declining for the eighth straight month. The benchmark for NAND flash memory, used in smartphones and other devices, fell 14% in October-December compared with the previous quarter.
Chip inventories are piling up across the supply chain as computer and smartphone sales flag. A source at one chip distributor says transactions have stalled.
“Consumer spending won’t fully recover until the three headwinds subside: the coronavirus, Russia and inflation,” said Akira Minamikawa at British research company Omdia.
Faced with this slump, several memory chipmakers are reining in capital spending.
Micron Technology CEO Sanjay Mehrotra said last month there was a major imbalance between supply and demand in both DRAM and NAND. He said his company will reduce capital investment by approximately 40% for the fiscal year ending August.
Samsung’s South Korean rival SK Hynix said it will reduce capital spending by more than 50% in 2023, while Japan’s Kioxia Holdings plans to cut output. Taiwan Semiconductor Manufacturing Co, a global leader in contract chipmaking, said it will cut back on investments as well.
But Samsung appears to be sticking with its investment plans. Multiple suppliers say the company continues to purchase new equipment, mostly for cutting-edge chips.
The company has said it will continue to prepare for a market recovery from a medium- to long-term perspective.
Samsung is no stranger to investing under adversity. It has led the global memory market for years by spending during lean times to outcompete rivals in the next boom.
Investing when few others are allows Samsung to negotiate favourable prices and delivery schedules with suppliers. Samsung is eager to secure advanced chipmaking equipment against fierce competition to catch up to TSMC on cutting-edge chips.
Tougher US restrictions against Chinese semiconductor companies also give Samsung a window to head off potential threats from up-and-coming Chinese rivals, like Semiconductor Manufacturing International Corp and Yangtze Memory Technologies Corp.
Meanwhile, the South Korean government has lent its support. It announced plans Tuesday to expand the tax deduction for capital spending in strategic technology, like semiconductors and batteries, to 15% from 8%.
Samsung has continued to expand its chip production complex in Pyeongtaek at breakneck speed. The framework of its fourth plant there is nearing completion just months after a third was announced to have come online in September. The campus is eventually expected to house six large-scale plants to become the world’s largest chipmaking hub.
Samsung’s strategy is made possible by the size of its war chest. Samsung held around 128.8 trillion won, or US$101 billion, in cash as of the end of September – about 10 times more than rivals SK Hynix or Micron, though the figures cannot be compared directly due to different accounting standards.
Yet a protracted downturn in semiconductor demand could weaken Samsung’s seemingly solid position. Interest rate hikes in the US and Europe and the war in Ukraine have weighed on global consumption and investment. Increased production by Samsung, one of the world’s largest chipmakers, could fuel a further supply glut in memory chips.
