Concerns on Oversupply
Samsung Electronics’ investments in semiconductor facilities this year are larger than that of the world’s largest system semiconductor producer and the world’s biggest foundry chipmaker TSMC combined. As Samsung Electronics has made the largest facility investment ever in its history, there is growing concern over an oversupply of memory chips. Market watchers say Samsung is changing its strategy that focuses mainly on profitability to that expands a memory market share through the so-called “chicken game.”
According to market research firm IC Insights on November 15, Samsung Electronics’ investments in its semiconductor facilities will reach US$26 billion (28.81 trillion won) this year. This is more than twice the figure of US$11.3 billion (12.52 trillion won) last year. During the 2017 Q3 conference call, Samsung Electronics announced to inject 29.5 trillion won (US$26.62 billion) into the semiconductor sector alone this year. IC Insights forecasts that the total amount of facility investments in the semiconductor industry will come to US$90.8 billion (100.61 trillion won) this year, up 35 percent from last year. Samsung is expected to account for 28.6 percent of the total.
The market research firm says Samsung will inject US$14 billion (15.51 trillion won) in 3D NAND flash, US$7 billion (7.76 trillion won) in DRAM and US$5 billion (5.54 trillion won) in foundry and others this year. The company is expected to make the investment to increase the production capacity at its new Pyeongtaek plant in the 3D NAND flash sector, upgrade the process node and prevent a wafer input loss in the DRAM sector, and expand 10-nm production in the foundry sector.
IC Insights said, “Samsung’s large-scale investment will cause the oversupply of 3D NAND flash chips. It can also instigate the investment of its competitors such as SK Hynix, Toshiba, Micron and Intel.” It means that Samsung’s move can either increase the total investment or lose a market share.
Samsung’s huge investments will deflate the hopes of Chinese firms that seek to push into the NAND flash and DRAM memory markets, according to the market research firm. It said, “Considering Samsung’s investments this year, Chinese memory chip start-ups will not be able to compete with Samsung on the same basis unless they establish a joint venture with existing memory chip makers.”
IC Insights focused on more the 3D NAND flash sector. However, Taiwan-based market research company TrendForce said there are concerns over the excessive supply in the DRAM market as well citing ET News’ report on Samsung Electronics’ expanding DRAM supply on October 30.
TrendForce said, “Samsung is trying to boost the production of DRAM chips in order to raise the barrier to market entry. This is to prevent further price increases.” Samsung Electronics has decided to convert some space of 16 lines in Hwaseong into DRAM production lines and produce DRAM chips on the second floor of the new Pyeongtaek plant. Merrill Lynch also said in its report published earlier this month that Samsung Electronics’ monthly DRAM production capacity will increase more than 20 percent in the next two years.
There is consensus in the industry that the memory boom will last until the first half of next year and droop from the second half. The general opinion is that it face difficultiesi In 2019. Samsung Securities and KB Investment & Securities have recently downgraded their investment opinions on SK Hynix from “buy” to “neutral.”
However, Kim Young-woo, a senior analyst at SK Securities, said, “The Taiwanese market research firm forecasted that there would be an oversupply earlier this year as well but the forecast is wrong when it comes to results. There will be no excessive supply because the amount of production will not dramatically increase even with larger investments than past as DRAM and 3D NAND flash chips have a higher level of process difficulty. In addition, there is a greater demand for memory chips in cloud infrastructure. Samsung cannot afford to boost the output while reducing its profits.”