Preparing for Upturn
Samsung Electronics’ decision to ramp up its investment this year despite a four trillion won deficit in the semiconductor sector is a sign that the Korean semiconductor giant is proactively preparing for an upturn in the market as the semiconductor industry will bottom out.
Samsung Electronics’ first-quarter results are characterized by a semiconductor shock. The performances of all divisions, including the Memory Semiconductor, Foundry, and System LSI (fabless) Divisions contracted. The DS Division’s sales dropped 49 percent from 26.87 trillion won (US$20.07 billion) in the first quarter of last year and its operating profit turned into a loss. The Memory Semiconductor Division’s sales plunged 56 percent to 8.92 trillion won (US$6.66 billion) from 20.09 trillion won (US$15.00 billion) in the same period last year. This was due to the fact that consumer sentiment, which has deteriorated due to continued external uncertainties such as a global economic downturn, did not improve, and product prices significantly dropped, resulting in poor profitability.
While Samsung Electronics managed to avoid an overall loss due to strong sales of the Galaxy S23 Smartphone, other divisions are facing difficulties as well. Operating profits in the video and home appliance sectors stood at 190 billion won (US$142 million), down 76.2 percent year-on-year in the DX Division. Those of Samsung Display hit 78 billion won (US$58 million), down 28.4 percent from a year earlier. The only bright point is that its automotive electronics subsidiary Harman continues to grow, posting 13 billion won (US$9.7 million) in operating profit.
Experts expect to see no big change in the business performances of Samsung Electronics in the second quarter. The semiconductor industry is still in the midst of a slump, and smartphone sales, which offset the company’s losses in the first quarter, are expected to diminish. A prevailing view in the Korean stock market is that Samsung Electronics will post a loss in the second quarter. If that happens, it will be the first time in 15 years since the fourth quarter of 2008, when the company posted an operating loss of 940 billion won (US$702 million).
Despite this crisis, Samsung Electronics is focusing on the possibility of improving its performances in the second half of this year. The company says that while its situation is serious, there are clear signs of change in the market environment amid aggressive measures such as production cuts.
Samsung Electronics expects to seize opportunities in improvement in demand for chips for mobile devices and PCs, the launch of new central processing units (CPUs) for servers, and increased demand for high-capacity memory due to expanding demand for semiconductors for artificial intelligence (AI). Intel’s next-generation CPU launch is also expected to fuel the supply of DRAMs. In response, the Korean tech giant plans to adjust the production volume of legacy products, and to also maximize the production scale of frontline products that will drive demand growth without cutting production. This explains why Samsung Electronics declared its intention to dial up its semiconductor investment despite an unprecedented slump in the semiconductor industry.
Samsung Electronics’ investment of 17 trillion won (US$13 billion) in the first quarter is the company’s largest ever quarterly investment. Of this amount, 6.58 trillion won (US$4.91 billion) went to research and development (R&D) and the amount is more than 10 times the company’s operating profit of 640 billion won (US$478 million) in the first quarter. Even with quarterly profits falling below 1 trillion won for the first time in 14 years, the amount of investment was 100 billion won more than in the fourth quarter of 2022, which was the previous largest quarterly investment (6.47 trillion won or US$4.83 billion).
Its facilities investment also ascended by 35.4 percent from 7.9 trillion won (US$5.9 billion) in the first quarter of 2022 to 10.7 trillion won (US$7.99 billion) in the first quarter of 2023. Of this amount, 91.6 percent, or 9.8 trillion wo(US$7.3 billion), was invested in semiconductor facilities. This year, Samsung Electronics plans to keep its annual investment at a level similar to that of 2022, which was the largest ever.
Samsung Electronics also expressed its intention to participate in negotiations on the U.S. CHIPS Act. “The U.S. government has said that it will collect opinions from the semiconductor industry and refine its plans through negotiations with chipmakers,” said Seo Byung-hoon, vice president of Samsung Electronics. “Samsung Electronics will take part in this procedure as well.”