Friday, February 28, 2020
Samsung Electronics Considers Additional Investment in Semiconductor Plant in Xian
Caught In the Middle of U.S.-China Trade Dispute
Samsung Electronics Considers Additional Investment in Semiconductor Plant in Xian
  • By Kim Eun-jin
  • October 10, 2019, 09:08
Share articles

Samsung Electronics’ NAND flash memory production plant in Xian, China

Samsung Electronics Co. is considering making an additional investment in its second semiconductor plant which is under construction in Xian, Shanxi Province, China. However, the company is caught in the middle of the trade dispute between the United States and China.

Samsung Electronics is planning to slightly increase its capital expenditure (CAPEX) for memory chip facilities next year to US$6.50 billion (7.78 trillion won), according to securities and semiconductor industry sources on Oct. 9. Part of the increased amount is expected to be spent on an additional investment in its second semiconductor plant in Xian. The company will announce such an investment plan at the end of this year.

Samsung Electronics has been mass-producing the first-generation V-NAND flash memory in its first Xian plant, which was completed in 2014. However, the company signed a memorandum of understanding (MOU) with the Shanxi provincial government in August 2017 to build a second plant as NAND supply was not enough even after it fully operated the first plant. It announced plans to invest US$7 billion (8.38 trillion won) for three years until 2020 at that time. The Chinese government offered various benefits, such as tax exemption and usage of factory site, to Samsung Electronics.

Samsung Electronics is under pressure as it has to not only complete the investment by August next year but also fully operate the plant. This is because the company cannot but be conscious of the Chinese government and Chinese companies which are the biggest customer of memory chips. Lee Se-chul, an analyst of Citi Group, said, “Samsung Electronics is expected to expand investment to process up to 40,000 wafers a month.” The size of investment is not known but a production line generally costs 2 trillion won to 3 trillion won (US$1.67 billion to 2.51 billion).

The industry believes that Samsung Electronics’ additional investment can create more uncertainty in the NAND flash market which currently experiences supply excess as well as can be a differentiated strategy in the NAND market which has an intensifying competition.

The NAND flash market is gradually showing signs of recovery unlike DRAM. The price of 128Gb multi-level cell (MLC) NAND flash memory products stood at US$4.11 (4,918 won) at the end of last month, showing little change compared to the previous month, according to DRAMeXchange. The figure rose at the end of July for the first time in two years and also increased more than 2 percent in August.

Under the current circumstances, the market will not be greatly affected by Samsung Electronics’ additional investment and production expansion but the company can take more market share from other companies as they are reducing production.

The DRAM market is dominated by three companies, including Samsung Electronics, SK Hynix and Micron, while there is keen competition in the NAND flash market among Samsung Electronics, Toshiba, WDC, Micron, SK Hynix and Intel.

Samsung Electronics said it would not artificially reduce semiconductor production despite the slowdown in the semiconductor market during a conference call in the second quarter. This is in contrast to SK Hynix and Micron which announced to cut production earlier.

With such a strategy, Samsung Electronics’ market share is slightly on the rise. Market research firm IHS Markit said the company’s NAND flash market share was 38.6 percent in the third quarter of this year, up nearly 6 percentage points from the first quarter. It also expects that Samsung Electronics will record a share of 46.6 percent in the global DRAM market. The company will recover to the level of three years ago just in three quarters after its market share dropped to 39.9 percent in the fourth quarter last year.

Meanwhile, the second Xian plant has installed domestic equipment and begun test operation and is checking its yield before it starts mass production in earnest in February next year. A plant usually prepares for mass production at least two to three months before it starts mass production because problems like yields can occur when memory chips get a higher level of accumulation. Therefore, Samsung Electronics has not started mass production yet at its second plant in Xian.