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Semiconductors

Uncertainty clouds Samsung as paradigm shifts toward profitability

Chipmakers are pursuing profits while limiting shipments to buttress falling chip prices, analysts say

By Oct 28, 2021 (Gmt+09:00)

Workers at a chipmaker's clean room
Workers at a chipmaker's clean room

Samsung Electronics Co.’s third-quarter earnings report on Thursday was almost perfect but for one thing. The world’s top memory maker skipped the routine capital expenditure plans and industry outlook, citing uncertainty.

The South Korean tech giant on Oct. 28 posted consolidated sales of 74 trillion won ($63 billion) for the three months to September, a quarterly record and a 10.5% increase from a year earlier.

Third-quarter operating profit rose 28% on year to 15.8 trillion won, the company’s second-highest quarterly performance.

However, during its earnings call where Samsung usually unveils its investment plans for the coming quarter and next year as well as its view on the chip industry, the company remained silent, with executives repeating the word “uncertainty” 11 times on the call.

“For the outlook next year, while macro uncertainties such as the timing of mitigating component supply issues, the influence of ‘living with COVID-19’ policies amid increasing vaccination rates and raw material pricing issues, it is difficult to provide specific guidance,” said Han Jin-man, executive vice president and head of Samsung’s memory global sales and marketing division.

Samsung spent 33.5 trillion won in capital expenditures in the first nine months of the year, including 10.2 trillion won in the third quarter, but it remained mum on its fourth-quarter plans when asked by analysts on the call.

Han said the size and timing of Samsung’s investment in the fourth quarter depend on “market conditions.”

The only figures available during the earnings call were about its chip foundry business.

Samsung said its foundry capacity has increased 1.8 times compared to 2017 through a facility ramp-up at its Pyeongtaek plant and is expected to triple by 2026.

On Samsung’s memory market outlook, the executive said disruptions to the production of finished chipsets are protracted due to a component shortage and chip price negotiations are “tough” as industry views vary from one chipmaker to another.

Uncertainty clouds Samsung as paradigm shifts toward profitability

SHIFT TOWARD PROFITABILITY

Samsung said the company's focus is now on technology leadership and profitability in an apparent turnaround from its hard push to expand market share through heavy shipments.

“We will maintain solid profitability in the finished products business by strengthening our leadership and lineups in the premium segment,” the company said in a statement.

Analysts said Samsung and its global peers have started to pursue profits over sales revenue to prepare for future investments, while limiting shipments to buttress falling chip prices.

SK Hynix Inc., the world’s second-largest memory maker, mentioned the word “profitability” 10 times during its third-quarter earnings call on Monday.

Meanwhile, the company said its third-quarter DRAM bit growth, the amount of memory produced, fell 1.6%, compared to a 5.1% rise in the second quarter.

Crosstown rival Samsung is also planning to curtail growth in memory chip output to keep supplies tight amid an expected slowing in demand.

The industry’s chip inventory is currently at a record low level as major chipmakers are slashing output, according to Goldman Sachs.

Samsung Electronics Vice Chairman Jay Y. Lee visits ASML in the Netherlands
Samsung Electronics Vice Chairman Jay Y. Lee visits ASML in the Netherlands

EUV EQUIPMENT

Industry watchers expect chipmakers to increase their spending on state-of-the-art semiconductor equipment such as extreme ultraviolet (EUV) lithography machines to stay ahead of their rivals in technology advancement.

The Netherlands-based ASML Holding N.V. is the world’s only maker of EUV machines, which cost around $150 million apiece.

The supply of ASML’s EUV machines is severely limited, as the company can only manufacture around 30 to 40 units a year, and foundry leader Taiwan Semiconductor Manufacturing Co. (TSMC) is purchasing half of them, while the other half goes to others such as Samsung, SK Hynix, Micron Technology and Intel.

Earlier this month, Samsung said it aims to commercialize a 2-nanometer transistor process technology by 2025 with its advanced chip equipment to take on bigger foundry rival TSMC.

TARGET PRICE HIKE FOR HYNIX

Following SK Hynix’s move to curtail DRAM output after posting decent quarterly earnings, analysts are raising their target price for the chipmaker.

On Wednesday, NH Investment & Securities raised its price target for SK Hynix to 160,000 won from 150,000 won earlier, while Daishin Securities now expects the chipmaker’s shares to rise to 135,000 won from its previous call for 120,000 won.

“Risks linked to an industry slowdown have largely been reflected in SK Hynix’s share price. Moves by several chipmakers to slash output will improve the supply-demand situation, providing support for chip prices,” said NH Investment analyst Do Hyun-woo.

Samsung’s latest earnings show its other businesses also performed well in the third quarter.

Samsung's IT & Mobile Communications division racked up revenue of 28.4 trillion won with 3.36 trillion won in operating profit on strong sales of new flagship smartphone models such as the Galaxy Z Fold3 and the Galaxy Z Flip3.

Its display panel business also contributed to its strong results, with sales and operating profit reaching 8.86 trillion won and 1.49 trillion won, respectively.

Write to Hyung-Suk Song and Su-Bin Lee at click@hankyung.com

In-Soo Nam edited this article.
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