As The Market For Chips Declines, Samsung Is Defying The Trend By Investing More:
While many analysts predicted that Samsung Electronics Co. would reduce its capital expenditures along with its competitors, the company instead took the bold stance of maintaining last year’s investment levels.
Samsung Reported A 31% Drop In Quarterly Earnings:
Executive Vice President of Samsung’s Memory Business Han Jin-man assured analysts after the company reported a 31% drop in quarterly earnings that the company would not be contemplating an artificial production decrease.
We need to be ready for a resurgence in demand in the middle to long term, even if market demand has shrunk at the moment.
Although Samsung’s strategy to maintain spending during the recession is expected to increase the company’s advantage over its smaller competitors who are cutting down, it will have a negative impact on profits.
Samsung Takes A Risky Approach:
Samsung takes a risky approach while its rivals in the semiconductor industry play it safe. The company raised investing despite a 14% drop in its semiconductor business, in contrast to competitors SK Hynix and Micron, who reduced their capital expenditures.
Samsung Is Confident Enough In Its Ability:
Analysts speculate that Samsung is confident enough in its ability to cement its lead in memory chips & catch up to larger competitor TSMC in contract chip production that it will do so if a significant and rapid slump in global tech demand occurs.
On Thursday, the South Korean company also announced the appointment of Jay Y. Lee as executive chairman. The company credits Lee with being the driving force behind its decision to make significant investments in contract chip making.
Consumers Are Reducing Their Purchases Of Technological Goods:
Months after pandemic-driven manufacturing ramp-ups set in, customers have pulled down on purchases of electronics, leaving chip makers to deal with an unprecedented dip in the price of memory. As a result of the accumulated stock, prices have dropped by double digits, wiping away profits and causing Samsung’s smaller rivals to reduce production and expenditure.
Biggest Memory Chip Producer Had Semiconductor Sales of 23 Trillion Won In 3 Months:
According to a corporate statement released on Thursday, the world’s biggest memory chip producer had semiconductor sales of 23 trillion won ($16.1 billion) in the 3 months ending in September, falling short of the consensus estimate of 35 trillion won. Comparing the company’s net income to the expected level of 9.4 trillion won, it came in at 9.1 trillion won.
Company’s Profits Are Already Suffering From Falling Chip Prices:
Samsung’s profits are already suffering from falling chip prices. The major semiconductor division’s profit fell 97% to 270 billion won in the three months ending in December as customers continued to work through massive stockpiles of inventory. According to preliminary figures released earlier this month, the company’s operating profit dropped 69% to 4.3 trillion won, the worst loss in over a decade.
Hynix said on Wednesday that it will slash its capital expenditures for 2019 by half in response to the “exceptional” market degradation in the memory sector caused by falling PC and smartphone sales. Consumer spending is taking a hit due to rising oil and interest rates, and this effect is exacerbated by the increasing uncertainty caused by the United States’ efforts to limit China’s access to high-performance processors.
Samsung Predicts Semiconductor Demand Will Be Low Until Early 2023:
Due to geopolitical concerns, Samsung predicts semiconductor demand will be low until early 2023. The market for NAND flash chips, according to Samsung, could not bounce back until 2023 at the earliest.
However, it said it will increase memory chip shipments at a quicker pace than its competitors. In terms of supply strategy, Samsung is secretive.
With TSMC as its clear market leader, Samsung anticipated record revenue and operational profit in the contract chip sector this year.
Lee Seung-woo, an analyst at Eugene Investment and Securities, stated before the earnings report was released, “It’s impossible to predict demand rebound at this stage.” There has to be some wiggle room in production reduction strategies.
Jaejune Kim, the company’s executive vice president in charge of the memory division, stated that despite the fact that the economic climate “deteriorated dramatically in the fourth quarter,” the company’s attitude on chip expenditure has not altered.
On the results call, he added, “Our capex plan this year is to continue to make the infrastructure investments that are essential to react to mid- to long-term demand.” “Therefore, it is anticipated that this year’s capex plan would be comparable to last year’s.”