Monday, December 9, 2019
Samsung Electronics Not Planning on Any Chip Production Cut
Out of Concern about Price Fixing
Samsung Electronics Not Planning on Any Chip Production Cut
  • By Kim Eun-jin
  • August 7, 2019, 09:25
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Samsung Electronics’ decision not to reduce its memory chip production despite sluggish global demand has to do with concerns over price fixing.

Memory chip manufacturers such as Micron Technology, SK Hynix and Western Digital have recently announced that they would cut production in step with a decline in global demand. On the contrary, Samsung Electronics said that it is not going to reduce its memory chip production and it is going to deal with changing market environments by enhancing the efficiency of its production lines.

Samsung Electronics’ decision has to do with concerns over price fixing. Major global memory chip manufacturers such as Micron Technology and SK Hynix have already announced their production cut plans and the same message from Samsung can be thought of as a price-fixing activity.

A related lawsuit is ongoing in fact. In April 2018, American law firm Hagens Berman filed the suit with the U.S. District Court for the Northern District of California, claiming that Samsung Electronics, SK Hynix and Micron Technology raised DRAM chip prices by using their 95 percent market share and limiting production. The law firm filed a similar suit in 2006 and the defendants in the suit had to pay US$300 million. At that time, Hagens Berman made an issue of the semiconductor manufacturers’ conference call messages.

Samsung’s decision is based on its technological superiority as well. A higher level of microfabrication naturally leads to a decrease in production even without intentional wafer input reduction. This is because a higher level of microfabrication results in a lower production yield and requires more time for chip production.

In addition, a higher level of microfabrication leads to more chip production at the same wafer input and more cost-saving effects. With global semiconductor prices falling these days, microfabrication-based cost reduction is becoming increasingly necessary for semiconductor manufacturers.

Samsung Electronics is already overwhelming the others in the industry in terms of cost competitiveness. In the second quarter of this year, its semiconductor business unit posted an operating profit ratio of 21.1 percent. For reference, the unit’s operating profit ratio was 55.1 percent in the second quarter of 2018 and that of SK Hynix dropped from 53.7 percent to 9.9 percent during the same period.