Abu Dhabi, UAESunday 25 August 2019

Samsung to spend $116 billion on chips amid folding phone troubles

Samsung’s chip-making division has become the main driver of the overall business

Samsung unveiled the investment plans the same week it suffered a setback in its mobile phone business. Reuters
Samsung unveiled the investment plans the same week it suffered a setback in its mobile phone business. Reuters

Samsung intends to invest 133 trillion won (Dh426 billion) over the next decade or so to take on Intel and Qualcomm in the business of making advanced chip processors, quickening an effort to take greater control of the global semiconductor industry.

Samsung, which now leads the market for the memory chips used in devices from servers to smartphones, said it plans to ramp up investment in semiconductors in the years leading up to 2030 to take the lead in so-called logic chips. It aims to create 15,000 production and research jobs over that period to become the world leader in a field dominated by its US rivals. Shares in chipmaking gear providers such as Signetics and Alpha Holdings rose in Seoul.

Samsung, which is also looking to challenge Taiwan Semiconductor Manufacturing in the business of making chips for other corporations, joins companies from Huawei to Apple that are increasingly devising the brains that power computing devices. The Korean company has profited by designing its own microprocessors for devices such as Galaxy phones, but Intel has a commanding lead in the market for central processing units used in PCs and servers.

“It’s rare for Samsung to detail such a long-term plan,” said Yoo Jong-woo, an analyst at Korea Investment & Securities. “It’s an expression of Samsung’s commitment in a chip business that includes not only Intel but also a variety of chipmakers, such as in mobile processors.”

Samsung unveiled the investment plans the same week it suffered a setback in its mobile phone business. The company indefinitely postponed the April 26 launch of the highly touted Galaxy Fold after problems emerged with early test versions of the device. Samsung’s first-ever foldable smartphone was supposed to usher in a new era for mobile and revitalise growth in the sector.

The decades-long chip outlay may be aimed at keeping up with its main rivals. TSMC for instance has earmarked $10bn to $11bn of spending for 2019 alone.

“The investment plan is expected to help the company to reach its goal of becoming the world leader in not only memory semiconductors but also logic chips by 2030,” Samsung said in a statement.

Samsung’s semiconductor division has become the main driver of the overall business, yielding three-quarters of its 2018 operating income. The global market for non-memory chips rose to $290bn in 2017, according to Gartner, compared with $130bn for memory. It spent 23.7tn won on semiconductor equipment last year, expanding capacity to cater to a surge in demand from makers of artificial intelligence and automotive technologies and the so-called Internet of Things.

The company's semiconductor production facility in Hwaseong, south of Seoul, South Korea. Courtesy of Samsung
The company's semiconductor production facility in Hwaseong, south of Seoul, South Korea. Courtesy of Samsung

But slower orders from data centre owners such as Amazon and handset makers including Apple have pushed down prices for both DRAM and NAND memory in recent months. Samsung said in preliminary results that its operating profit for the March quarter dropped 60 per cent to about 6.2tn won, the worst decline in more than four years.

Samsung’s main targets in the chip sector would likely be companies like foundry operator TSMC and mobile chipmaker Qualcomm, as dethroning Intel in computer microprocessors would be close to impossible for now, said Ahn Ki-hyun, a director at Korea Semiconductor Industry Association. “This is a major step toward cementing a No 1 position in global chip revenue,” he added.

Updated: April 24, 2019 10:39 AM

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