By Kim Yoo-chul
Staff Reporter
Samsung Electronics, the world’s top memory chip maker, is said to be under pressure after its second-quarters earnings report came out and the recent power outage halted chip production.
However, market watchers say worries about Samsung Electronics are exaggerated as the company is expected to continue its healthy pace over the coming years amid a shortage of NAND flash memory chips.
NAND prices rose an average of 5 to 10 percent overall after a power outage at Samsung Electronics early this month. Samsung shut down six of its manufacturing lines Aug. 3, disrupting production of NAND devices and DRAMs. By Aug. 6, power was restored, but the disruption had cost the chipmaker some $41 million in lost business.
Market watcher iSuppli says growth in the semiconductor market around the globe will reach 6 percent this year and rise 8 percent next year. The research group also says vendors are boosting production and even seeking new partners to meet rising demand for chips. Also, analysts say second-tier customers have been willing to buy products at any price.
``Considering the expected growth in the memory chip market, questions about the fate of Samsung Electronics are exaggerated,’’ said J.H. Son, general manager of iSuppli’s Korea office.
He said Samsung’s bold restructuring measures need to be viewed in a bid to revitalize the organization as Samsung’s image has become somewhat stale in recent years.
``Samsung is conducting a review to seek active investment and streamline the efficiency of operations that are not competitive enough because South Korea’s largest conglomerate needs to find new growth engines that are directly associated with competitiveness,’’ he added.
Samsung said cost-cutting efforts have been implemented everywhere.
On Monday, Samsung announced it will carry out a management evaluation of its chip sector for the first time since 2001. The evaluation will start this week and last for about six weeks.
Samsung emphasized that the inspection is an effort to search for the firm’s next-generation growth engines and retain its dominant position in the semiconductor industry.
According to Samsung officials, the company expanded its flexible working hour system to research-related staff members and some of its overseas offices. Officials say meal subsidies will also be cut from 2,000 won to 1,000 won. Starting Aug. 1, Samsung has already stopped giving 1 million won worth of congratulatory bonuses when family members get married.
Such measures came after the chipmaker’s April-June operating profit fell below the 1 trillion won mark for the first time in five years.
The company has planned to lower investments in 2007 by 19 percent from a year earlier to 8.1 trillion won. Active investments, which were the key to Samsung’s success in stamping a lead over Japanese rivals in semiconductors, will likely be frozen.
Samsung has also offered voluntary retirement packages to senior directors and executives. Although a specific target has not been set, the company expects to lop off 10 percent of top personnel in some sectors.
The semiconductor section was Samsung Group’s top gainer in 2004, making 60 percent of the overall operating profit. However, the division’s operating profit stagnated to 330 billion won in the second quarter ended June, one-sixth of the level three years ago.
Despite increased fears, its credit rating is not likely to be downgraded at least for the next two years.
``S& P is not considering downgrading Samsung’s ratings. We maintain the firm’s ratings as `stable’,’’ says Kwon Jae-min, a senior analyst from Standard & Poor’s.
The analyst said he does not see any fundamental problems for Samsung Electronics and the possibility of credit downgrading is low.
`` Samsung’s current ratings have already reflected negative factors. We see Samsung’s mid-term outlook over the next three to five years as positive,’’ he said, adding that the fast recovery from the power outage contributed to stabilizing NAND chip prices.