Samsung's Lee visits China amid easing virus fears

Samsung Electronics Vice Chairman Lee Jae-yong, second from left, inspects the company's memory chip manufacturing plant in Xian, China, Monday. / Courtesy of Samsung Electronics

Group leader's visit to the firm's Xian plant comes after US hits Huawei hard

By Baek Byung-yeul

Samsung Electronics Vice Chairman Lee Jae-yong visited the company's key semiconductor plant in Xian, China, Monday, resuming his on-site inspection activities after his pledge to help the consumer electronics giant continue its upward trend.

Samsung said the vice chairman used his Chinese trip to encourage employees who have been trying hard to overcome difficulties from the COVID-19 pandemic. Lee is the first "global businessman" to visit China since the virus erupted, Samsung said.

This was Lee's first overseas business trip since January when he inspected TV and smartphone manufacturing lines in Brazil. His visit was possible as Korea and China began operating a fast-tracked border entry system, exempting businesspeople from a 14-day mandatory self-quarantine period starting this month.

"There will be no future if we are haunted by the past or rest on what we have done so far. To create new growth engines, we need to be preemptive and be prepared for forthcoming changes," Lee was quoted in the statement issued by Samsung. "We have no time. We cannot afford to lose this moment."

The Xian plant is Samsung's only memory chip plant located outside of Korea. In an effort to sell more chips to Chinese electronics firms, Samsung announced a factory expansion plan last year, in which it will invest $8 billion in the newly built plant.

The vice chairman is accelerating his search for the corporation's new growth engines. He apologized recently over both alleged and confirmed past wrongdoings related to management succession plotted by some Samsung executives. He also said Samsung would invest in the businesses that it did well and actively seek out new growth opportunities in promising sectors.

Lee's visit to China came at a time when the United States announced it will limit the supply of memory chips made with its technologies to Chinese telecommunication equipment maker Huawei Technologies, May 15.

US cracks down on global chip exports to Huawei; China retaliation eyed

2020-05-18 14:31 | World

Under that new sanction, companies using chip-making technology from the U.S. will be required to obtain a U.S. license before supplying chips to Huawei, which means Korean chipmakers such as Samsung and SK hynix will have to cut off their chip supplies to Huawei unless they get waivers from the U.S. commerce department.

Given Huawei is one of the largest buyers of chips made by Samsung and SK, it remains to be seen how Samsung could seek a breakthrough in the semiconductor industry which faces a series of negative factors such as the U.S.-China trade row and global economy slowdown sparked by COVID-19.

Will Samsung expand Austin chip factory?

Whether Samsung Electronics will expand its chip-manufacturing factory in Austin, Texas, is one important point, according to company and industry officials. The Austin plant is Samsung's only chip-making plant in the United States.

Taiwan's TSMC is at the forefront of the move as the Taiwanese chip foundry company announced its plans to build a chip-making plant in Arizona. The world's largest contract-based microchip manufacturer said the decision to build the plant is to enhance its partnership with the U.S. government, adding the new factory will create over 1,600 high-tech professional jobs and thousands of indirect jobs.

"Construction is planned to start in 2021 with production targeted to begin in 2024. TSMC's total spending on this project, including capital expenditure, will be approximately $12 billion from 2021 to 2029," TSMC said in a statement, May 15. "This project is of critical, strategic importance to a vibrant and competitive U.S. semiconductor ecosystem that enables leading U.S. companies to fabricate their cutting-edge semiconductor products within the United States and benefit from the proximity of a world-class semiconductor foundry and ecosystem."

Industry analysts said Samsung will be able to live up to the Trump administration's expectation if it builds additional fabrication facilities in its existing Austin plant.

They added the expansion of the Austin plant is not a bad choice at all as Samsung is required to increase its production capacity in the contract-based foundry business to better compete with industry-leader TSMC, which is widening its market share gap with Samsung, which is in second place.

According to data by market tracker TrendForce, TSMC had a market share of 52.7 percent in the foundry business in the fourth quarter of 2019 while Samsung took 17.8 percent. Given TSMC had a share of around 48 percent a year ago when Samsung remained at 18 percent, the gap between the two has widened steadily.

"The possibility of placing high tariffs is increasing due to the U.S.-China trade dispute and issues about a supply chain bottleneck in the wake of the COVID-19 outbreak, and it is expected that fabless companies will increasingly give their chip production contracts to foundry companies that have better accessibility and are low risk," said Kim Kyung-min, an analyst at Hana Financial Investment.

"From the perspective of Samsung, expanding its Austin factory is a necessity in order to strengthen the competitiveness of its foundry business and reduce TSMC's lead."