Korean chipmakers plan record investment

An SK hynix's chip-making line in Wuxi, Jiangsu Province, China, is seen in this file photo. Samsung Electronics and SK hynix are planning to make record investments this year amid the bankruptcy filing of Elpida Memory and recovery of chip-embedded device prices. / Korea Times file

Samsung Electronics to expand capital spending by 25% to $17 bil.

By Kim Yoo-chul

Korean chipmakers are planning to make a record investment this year to solidify their leading positions in the global market on the back of handsome profits and new opportunities to be created by the fall of Japanese rival Elpida.

Samsung Electronics made a record of $5.1 billion profit in the first quarter powered by strong sales of its new Galaxy Note and smartphones.

``This is the right time for Samsung to invest more. This is about a winner takes all game. Thanks to the bankruptcy filing of Japan’s Elpida Memory, chances have been raised for us to further strengthen our bargaining power,’’ said an official from Samsung Electronics’ chip plant in Giheung, on the outskirts of Seoul.

The official also stressed the company has redesigned much of its new global factory investment to support rising tablet and smartphone sales both for itself and for its customers including Apple. Samsung is the world’s top smartphone maker.

Apple is expected to buy $11 billion worth of parts from the Korean firm including flat-screens and LCDs this year from 2011’s $7.8 billion, according to Samsung executives.

Samsung Electronics decided to increase this year’s investment by 25 percent more than an earlier target including 19 trillion won ($17 billion) in semiconductors, they said.

Last year, it invested 13 trillion won into chips ― an increase of 30 percent.

``Samsung will be aggressive in investment in chips this year because Elpida’s bankruptcy could increase the prospects of an oligopoly in the global market for DRAM chips. We have been leading the market,’’ said another official.

Some 10.5 trillion won will be invested in boosting the output of less-volatile and profitable system chips, while the remainder will be spent on advanced memory chips. System chips are not categorized as memory chips.

Samsung plans to completely reorganize its plant in Austin, Texas, exclusively to handle system chips amid rising demand from Apple for ``controlling chips’’ said the official.

The company said in January that it expects to spend at least $1 billion this year to add more equipment to the Austin plant.

Samsung has been optimistic about the outlook for mobile application processors (APs), a variant of system chips, as its top clients led by Apple prefer them due to better pricing, quality and output commitment.

Memory chips such as DRAMs and NAND flashes are just used to read and store data. The chips are already commoditized and the sector is crowded.

But the market for system chips is steadily rising and still promising as there are few players.

It’s required to have very fine-tuned technology to produce these chips because they are used to control entire computing system.

The new investment plan for memory chips includes introducing advanced 28-nanometer processing technology for its 11th and 13th production lines in Korea.

``Samsung is worrying over the emergence of a new rival. I mean. If Toshiba or Micron Technology acquires Elpida, then we will be challenged. Therefore, Samsung should take pre-emptive action,’’ said Jun Dong-soo, the president of the firm’s memory business division.

Record investment by Korean chipmakers

Samsung Electronics isn’t the only one bullish as the world’s No. 2 memory chipmaker SK hynix is also planning to spend 20 percent more.

``In a recent with SK Group Chairman Chey Tae-won, I heard that the group will continue its bullish moves in investment to help the chipmaker see faster tech migration and narrow the market gap with Samsung,’’ said an SK hynix official.

At least 5 trillion won will be invested this year from a previous investment target of 4.2 trillion won, according to officials.

And that means the combined spending for semiconductors by Samsung and SK hynix will reach a historical high of 24 trillion won.

``Chip prices will rise as the bankruptcy of Elpida has raised hopes that oversupply will be eased,’’ said Noh Geun-chang, an analyst at HMC Investment, stressing big cuts in Elpida’s operations will lead to increased market share and profitability for the Korean firms.

Elpida was the world’s third-biggest producer of DRAM chips with a market share of 12 percent during the fourth quarter of last year behind Samsung Electronics’ 44.3 percent and SK hynix’s 23.3 percent, data from DRAMeXchange showed.

The market share of the two could rise to over 70 percent in the first half of the year, another milestone. ``Yes, I can say the `Elpida effect’ has already begun,’’ said Noh.

A recent media report in Japan said executives from Toshiba visited SK hynix to propose a joint bid for Elpida, with the two taking an equal share.

Toshiba has also showed interest in buying the bankrupt chipmaker, which was de-listed from the Tokyo Stock Exchange, as has Micron Technology of the U.S. SK hynix is keen to check Elpida’s confidential data during a due-diligence period, said market analysts.

Citing a price rebound in computer memory chips, analysts say Elpida’s woes justifies Samsung’s investment and will also allow SK hynix to boost profits.

The global DRAM industry has so far been mired in one of its worst downturns amid lower demand and oversupply. Chipmakers are rapidly shifting their focus to profitable chips such as mobile DRAMs driven by demand for Web-connected digital devices such as tablets and smartphones.