Samsung dismisses worries over 'chip down cycle'

By Baek Byung-yeul

Samsung Electronics dismissed concerns over the possibility that the global semiconductor industry will enter into another down cycle, noting that there are more “applications” requiring the use of memory chips.

“Compared to the past, the amplitude of the memory chip cycle has been reduced,” Han Jin-man, executive vice president at Samsung's memory business, said in a conference call to investors after the release of the company's third quarter earnings results Thursday.

Samsung is expecting to see a growing number of uncertainties ahead due to the prolonged COVID-19 pandemic and supply shortages, but this is not as worrisome as the market's outlook.

“The range of fluctuations in the memory industry has decreased due to diversification of applications, miniaturization of memory processes and management capabilities acquired from previous experiences. As a result, the possibility of an excessive down cycle as seen in 2018 is slim,” Han told investors.

After a three-year boom, the global memory chip market is seeing prices stabilize with investment banks saying DRAM prices have already hit a peak and there is a possibility of oversupply that could cause price erosion.

Regarding its foundry (contract-based) manufacturing, Samsung told investors it was on track to increase production capacity by investing more in facilities at home and abroad.

“We are making unprecedented investments to meet customers' needs, such as expanding production capacity at our Pyeongtaek plant in Korea and reviewing the establishment of a new fab in the United States,” a company official said. “Currently, our foundry capacity has expanded 1.8 times compared to 2017 and we plan to nearly triple it by 2026.” However, he didn't go into details on the planned spending on semiconductors.

Samsung head Lee Jae-yong is expected to soon visit the United States, and while there fix its massive $1.7 billion investment in a facility in Williams County, Texas, as the county has already offered massive tax and administrative incentives.

In its foldable mobile business, Samsung said it expects this year's sales volume to be twice that of 2020, adding sales will grow significantly in 2022.

Regarding updates in its shareholder-return policy, Samsung said it will consider giving “special” dividends. “There is no change in the plan to share the amount of the annual free cash flow when announcing the fourth quarter performance, and we will actively review the possibility of early returns if there are more meaningful resources than existing dividends,” the company official said.

Free cash flow is money left over after a company pays taxes, operating expenses and capital expenditure. Samsung earlier said the remaining portion will be used either for additional dividends or a share buyback if there is cash left after normal dividend payouts.

Samsung posted sales of 73.98 trillion won ($63.2 billion) in the third quarter, the highest quarterly performance in its history, on the back of the booming semiconductor business brought on by continued non-face-to-face working and increased sales of foldable phones. Its operating profit was 15.82 trillion won, up 28.04 percent from the same period in 2020.