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Prolonged “Absence of Investment”
Prolonged “Absence of Investment”
  • By matthew
  • July 24, 2013, 01:04
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Semiconductor manufacturers’ investment into plants and equipment will likely be made at a snail’s pace. There is slim chance of market share competition because nothing but smart devices is driving up demand for semiconductors and the semiconductor manufacturers seem happy with gains from the stabilized market prices for now. The equipment suppliers are under severe stress to come up with strategies to survive the current market situation where the 2-year-long investment downturn continues even further and the Japanese yen keeps undervalued.

According to industry sources on May 28, Samsung Electronics and SK Hynix have decided to minimize the investment in semiconductors this year, but still undecided the size of actual investment.

Samsung Electronics previously announced its investment plan; US$ 7 billion (about 7,807.8 billion won) in Xian, China; 2.25 trillion won in its Hwasung Plant Line 17 in Gyeonggi Province, Korea; and US$ 3.9 billion (about 4,333.7 billion won) in Austin, USA. However, nothing has been carried out but the groundbreaking for part of the Xian Plant until now.

SK Hynix is also going to make very little investment this year. It has no new investment plan but the partial expansion of the Nand Flash Line in its Cheongju M12 Plant. The company has delayed the previous plan to have a larger portion of DRAM for mobile devices because DRAM for PCs, accounting for about 40% of the current DRAM lines, has recently improved the profitability. In accordance with its profit-oriented management strategy, the company will focus on currently available substantive gains rather than investment for the future for a while.

The investment in semiconductor plants and equipment keeps inactive because the market, which has been driven by smart devices in recent years, is now reaching a saturation point. According to a global market research firm Strategy Analytics, the smartphone market grew 43% in 2012, a sharp decrease from 2011 (64%). It predicts the growth rate in the advanced nations will drop to a 10% level this year.

The stabilized DRAM prices are regarded as a negative factor to the expansion of equipment investment. An industry expert said, “Prices have risen since most companies ran out of the year-end inventories and some Japanese and Taiwanese players began curtailing production. Now the surviving companies are enjoying the survival effect.They want to keep the status quo as long as possible.”

Accordingly, the equipment suppliers are struggling to get out of the deep swamp of economic depression. “Samsung Electronics might think of expansion, but there is no room for additional equipment because it delayed the works for expansion of the Hwasung Plant Line 17. The equipment suppliers are disappointed with Samsung’s decision to put no money at home but some in Xian, China,” said Kim Sung-in, a researcher of Kiwoom Securities. As the recently weaker yen has pushed down the Japanese equipment by nearly 30% and the local companies in China are very actively approaching Samsung, the Korean equipment suppliers’ winning chances are slim. 

An industry source said, “We are seeking business diversification toward displays and light-emitting diode (LED), and looking for new business opportunities such as materials. We are also thinking of the overseas markets such as Taiwan and China, but situations are not good.”