Samsung defies pandemic and trade threats with chip expansion

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Samsung Electronics will forge ahead with billions of dollars of new investments in computer chip production despite uncertainties caused by the coronavirus pandemic and political tensions between its key US and China markets.

The South Korean technology group on Thursday announced construction of an $8bn production line in its home country, which will produce the high-end processor chips used across 5G, artificial intelligence and high-performance computing.

The Seoul-based company, the world’s largest chipmaker, also confirmed it would continue with a separate $8bn expansion of its memory-chip factory in the Chinese city of Xi’an after a visit this month by Lee Jae-yong, the vice-chairman and de facto head of the group.

The investments come despite concerns over demand for technology products, as the global economy is battered by crippling lockdowns and job losses caused by the health crisis.

Capital expenditure in computer chips is expected to drop by 3 per cent this year to below $100bn, according to research group IC Insights.

But Sanjeev Rana, a Seoul-based analyst at brokerage CLSA, said Samsung’s computer chip unit, its most important earnings driver, had been boosted by an increase in online activity as more people spent time at home due to lockdowns.

“At the back end of this it is all memory and servers, and Samsung is benefiting from that,” said Mr Rana.

Semiconductor manufacturers have suffered less from the mandated production shutdowns that have plagued other industries battling the coronavirus outbreak, because their facilities are highly automated.

Both Samsung’s new processor chip foundry line, which will be at Pyeongtaek near Seoul, and the Xi’an expansion are expected to be completed next year. 

The former project is part of Samsung’s $116bn, decade-long attempt to dethrone Taiwan Semiconductor Manufacturing Co, which has for years controlled more than half the market for making processors — the “brain” of any computer. TSMC’s customers include Apple and Huawei.

Still, a resurgence of tensions between the US and China over technology has created uncertainty. Washington recently moved to cut off the supply of computer chips to Huawei, the world’s biggest telecoms network group and one of the largest smartphone producers.

TSMC, a critical Huawei supplier, last week confirmed plans for a $12bn foundry in the US as it seeks to maintain good relations with both Beijing and Washington.

Samsung, also the world’s biggest producer of smartphones and displays, could lose business if Huawei’s demand for electronic displays and memory chips is hit.

Samsung also competes with Huawei when it comes to smartphones, but analysts said there was little chance of it taking handset market share from the Shenzhen-based group. South Korean groups have for years struggled against domestic competitors in the Chinese market.

The South Korean company, which is also pushing into 5G network hardware, could snatch international market share from Huawei if the US moves end up curbing the Chinese group’s offshore ambitions.

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