Preface: Cutting costs to seize mature process orders, expanding memory production capacity against the trend, and investing heavily in advanced process research and development, in the face of the downward cycle of the global semiconductor industry, Samsung once again continued its investment ideas of contrarian expansion.
Recently, South Korean technology giant Samsung took the lead in launching a wafer foundry price blitzkrieg, and the price reduction target was aimed at mature processes, and the price reduction was as high as 10%. It is reported that the price war has been quite effective, with the price reduction strategy, Samsung Electronics has successfully won some orders from Netcom chip factories in Taiwan.
In addition to cutting prices on wafer foundries to grab production capacity, Samsung's other two recent news is also worth noting, one is the storage plant, Samsung Xi'an Phase III project 12-inch fab is expected to start in mid-February, the other is in advanced process catch-up, Samsung and Google, AMD to launch a new generation of processor Exynos 2500, or will accelerate the research and development progress of advanced processes and shorten the gap with TSMC.
Cut costs to seize mature process orders, expand memory production capacity against the trend, and invest heavily in advanced process research and development... In the face of the downward cycle of the global semiconductor industry, Samsung Electronics has once again launched a market battle against the trend of expansion.
Cut prices, grab production capacity, catch up
Hit by the weakness of consumer electronics, Samsung, as a memory chip giant, is not having a good time. In the past fiscal quarter of 2022Q4, the profit of Samsung Electronics' chip business plummeted by more than 90%; In addition, overall revenue and operating profit both fell, with operating profit falling nearly 70% year-on-year, falling below KRW 5 trillion for the first time since the third quarter of 2014.
Other memory chip giants such as SK Hynix and Micron Technology, which also suffered a big plunge in financial reports, have announced that they will use a sharp reduction in investment in 2023 or cut production capacity and suspend research and development to overcome the industry downturn.
However, at this moment, the downward cycle of the industry seems to be a worthwhile investment opportunity for Samsung Electronics. Earlier, Jaejune Kim, executive vice president of Samsung Electronics' electronic storage division, said on the earnings call that although the market economy deteriorated significantly in the fourth quarter of last year, this year's capital expenditure plan is expected to be similar to last year, mainly to meet the need for medium and long-term demand.
In addition, Samsung's recent moves in wafer foundry, memory chips and advanced processes all confirm its ambition to expand against the trend: to consolidate its dominance in the memory chip market while global technology demand is sharply declining, and catch up with TSMC in the wafer foundry industry.
First of all, in the wafer foundry, Samsung Electronics' mature process foundry has reduced the price by 10%. It is reported that Samsung Electronics wafer foundry used to quote slightly lower than its peers, and now if the price is reduced by another 10%, it will inevitably put pressure on the pricing of other fabs, resulting in them having to choose between providing preferential conditions or losing orders. According to the "Taiwan Economic Daily", at present, Taiwanese fabs such as UMC and the world's advanced have begun to conditionally adjust prices with customers.
Previously, Samsung said in its 2022Q4 earnings report that in terms of wafer foundry, capacity utilization and revenue will decline as customers continue to adjust inventory. Therefore, for Samsung Electronics, price reduction can grab more markets to fill the capacity gap, and on the other hand, through the continuous squeeze on price, the cash-tight fab is eliminated.
Second, in consolidating the dominance of memory chips, even if the memory chip market plummets, Samsung Electronics still announced that it will increase its memory and fab capacity by 10% in 2023. The data shows that the current memory chip price has fallen by more than 50% compared with the peak in 2022. And this market is far from bottoming, many market research institutions are also pessimistic expectations, among which high-tech industry research institute TrendForce expects that DRAM, NAND Flash prices will continue to fall, and may need to be supported by large-scale production cuts.
Samsung Electronics, on the other hand, bucked the trend and "increased its position" to expand production capacity and upgrade equipment. According to Wall Street News, Samsung Electronics' Xi'an Phase III 12-inch fab will start construction in mid-February. It is reported that the total investment of the project is as high as 300 billion yuan, positioned as the production base of Samsung Electronics NAND flash memory semiconductors, and the production capacity of the first two phases of the project will occupy 40% of the total global production capacity of Samsung Electronics NAND after completion and production.
South Korea's Samsung Electronics Group, source: Sina News
In addition, Samsung Electronics plans to upgrade the NAND flash memory equipment at its first plant (P1) in Pyeongtaek, Gyeonggi-do, South Korea. Among them, P1's NAND line is expected to be transformed into a V8 (238-layer) NAND mass production line, which can process about 30,000 wafers. At present, there are still 6-7 companies in the world competing for NAND market share, and Samsung may want to squeeze or swallow smaller industry companies by increasing NAND production capacity.
Finally, in the battle for advanced processes, Samsung has always struggled to catch up with TSMC. The latest news came out that Samsung will work with Google and AMD to develop the mobile phone processor Exynos 2500. In this regard, some industry insiders analyzed that the Samsung Exynos 2500 processor is developed around performance, which may be equipped with a ten-core CPU and a twice-redesigned Xclipse GPU, which is expected to become an advanced process training weapon below 3nm. This also means that the launch of Exynos 2500 may accelerate the advancement of Samsung's advanced process technology and narrow the gap with TSMC.
Three counter-cyclical investments to beat your opponents
Looking back at Samsung's history, Samsung has defeated its opponents three times through counter-cyclical investment in history.
The first counter-cyclical investment, surpassing Japan's Toshiba
In its first counter-cyclical investment, Samsung surpassed Toshiba to become the global memory chip leader. In 1983, Samsung decided to make a massive investment in the 64KB dynamic random accessor, which was already oversupplied by the market at the time. In order to complete the development, Samsung set up two R&D teams in Silicon Valley and South Korea, employing hundreds of American engineers.
Because the technology lagged behind Japan for 4 years, it lost 140 billion won in the year of mass production, and by 1985, the price of DRAM continued to fall, but Samsung judged that some companies would withdraw from the competition, so it had to expand production capacity despite losses.
After that, Samsung spent a lot of money to hire a 100-person senior technical advisory group in Japan, and even hired Tsuyoshi Kawasei, vice president of Toshiba's "W Plan" with a high salary. Under such continuous learning and catch-up, in 1992, Samsung became the first company in the world to develop a 64bps dynamic random accessor; In 1993, Samsung surpassed Toshiba to become the global market leader in dynamic random accessors.
The second counter-cyclical investment made its LCD panel business
The second counter-cyclical investment made its LCD panel business. 1995-1996 is the second recession cycle of the LCD panel industry, Samsung once again adopted the strategy of "counter-cyclical" investment, not only did not choose to shrink to save life, but in 1996 built the first 3rd generation line, catching up with the production capacity of Japanese enterprises.
At that time, Samsung's judgment was that LCD panels were in the middle and upper reaches of the industrial chain, were the core components of most electronic products, and were anti-cyclical, so Samsung regarded it as an opportunity for certainty and dared to continue to increase investment to expand production capacity and upgrade technology when prices were low.
After that, even after the Asian financial crisis, the sharp depreciation of the Korean won exchange rate, Samsung Group was on the verge of bankruptcy, Samsung still unswervingly took the development of LCD TVs as its important strategy, and even sold the Bucheon factory and Samsung cars that had been put on sale, and finally the LCD industry was successful, helping Samsung Group obtain huge profits.
The third counter-cyclical investment to become the global hegemon of DARM
With the third counter-cyclical investment, Samsung has become the global hegemon of dynamic random accessors. At the beginning of 2007, Microsoft's Windows Vista operating system sales were less than expected, resulting in an oversupply of dynamic random access memory and falling prices, and coupled with the impact of the 2008 financial crisis, the price of dynamic random access memory chips plummeted 86% from $2.25 to $0.31.
Samsung once again "counter-cyclical" investment in expansion, deliberately exacerbating industry losses, and finally the price of dynamic random access memory fell below the cost of materials at the end of 2008.
Finally, at the beginning of 2009, the capital chain of the German dynamic random access memory giant Qimonda was broken, and European manufacturers completely withdrew from the dynamic random access memory industry; Dynamic random access memory manufacturers in Taiwan were also defeated due to small investment scale and withdrew from the market; The "national team" formed by the Japanese government to integrate the dynamic random access memory businesses of Hitachi, NEC and Mitsubishi also declared bankruptcy. Samsung's market share has further increased, becoming the global industry leader in dynamic random access memory.
summary
Over the years, Samsung has often made huge investments during industry downturns to beat competitors in the next boom period, expanding its global market.
Judging from the various strategies adopted by Samsung at present - price reduction, capacity expansion, and all-out efforts to catch up with TSMC, Samsung once again chose to "increase positions" during the downturn of the global semiconductor industry. And this time, do you think Samsung can still "turn over against the wind"? Welcome to share your views in the message area.
Resources:
1, "Chip Storm". Authors: Dai Jin, Liu Zhixiang
2. "Samsung Bucks the Trend and Increases Capital: Winning Apple's China Flash Supply" https://wallstreetcn.com/articles/3679861
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