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Samsung should be wary of Intel-style complacency

Tonhere is one Good story about Samsung getting into the silicon chip business, which at the time (1983) was dominated by Japanese and US manufacturers.Lee Byung Chul chaebol, announcing the new strategy in what he eloquently dubbed the Tokyo Declaration. He said that while his country lacks raw materials such as oil, it has a well-educated and hardworking workforce capable of chipmaking. As Geoffrey Cain recounts in his book “Samsung Rising,” it wasn’t long before some Samsung executives were sent on an overnight march from Seoul across the mountains to toughen them up face the challenge. They arrived at Samsung’s first semiconductor factory, built in a record six months, and signed a pledge to ensure the success of the business before breakfast. Then, without sleep, they work 16 hours a day.

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Call it real grit or call it a three-star martial arts-style work ethic. In one way or another, companies stand out from the competition and dominate the global memory chip market. For more than 30 years, it has been the world’s leading Memoryfor memory storage in computers and servers, and over 20 in NAND gate Flash memory, used in mobile phones. Since 2021, however, memory chips have been at the forefront of a boom-bust cycle in the semiconductor industry, with shortages followed by a surge in capital spending and what is now the worst downturn since at least the 2019 global financial crisis. 2007-09. Samsung Electronics, which includes the conglomerate’s semiconductor, display and consumer device units, is feeling the pain. On April 7, it said it would cut output of memory chips, despite forecasting a thin first-quarter profit. It’s an attempt to help reduce oversaturation in the market.

In the memory chip business, Samsung’s leading position has long been impeccable. It has been the “last man standing” during regular market downturns, said Malcolm Penn of industry forecaster Future Horizons. Its size, with $240 billion in revenue last year, gives it the economies of scale to withstand price drops for longer than rivals. Its smartphone business, while not growing as fast as it once did, generates reliable cash flow that helps it invest during the trough of the chip cycle. It eats into their market share while others struggle. That helped reduce its large rivals from nearly a dozen in the 2000s to two today —SK Hynix of South Korea and Micron of the United States. Samsung is far ahead, accounting for more than 40% of global sales.

It has long been against production cuts in the latest cycle.After being stuck for months, it surrendered SK SK Hynix and Micron said they would limit output. What is curious, however, is the impact. Shares of Samsung and two rivals soared. The simple explanation for a rally is that whenever a market leader throws in the towel, it is a signal that the bottom of the plunge is imminent. However, there is a more subtle one. Samsung’s lead among the memory trio may be so easy that it has no intention of stealing more business from its rivals. This may bring stability to the market. It also meant a sense of complacency that would make Lee turn pale.

There was a hint of complacency in its presentation to investors last November. Han Jin-man, head of memory sales, acknowledged that memory chips are sometimes viewed as commodities, whose prices fluctuate with capital expenditures. But he insisted that capital spending had stabilized over the past decade, Memory The trio is investing rationally and the market is now more balanced.In other words, Samsung seems content with overall growth Memory Rather than chasing market share from its rivals, the market is expected to triple to nearly $300 billion by 2035.

Un-Lee’s self-satisfaction manifests in other ways, too.Samsung loses some of its innovative edge here Memory and NAND gate Manufacturing Technology SK Hynix and Micron, according to Pierre Ferragu of consultancy New Street Research. “When you stop fighting for your life, you become complacent,” he said.Similar sentiments sent U.S. chipmaking champion Intel to rock bottom in the late 2010s, when it began losing ground in cutting-edge “logic” chips for processing data. TSMC Taiwan and Samsung itself.

Samsung’s stated goal of becoming the number one contract manufacturer of logic processors by 2030 doesn’t look like it’s happening either — again for reasons familiar to Intel. Sales of non-memory chips are the most valuable component of the $575 billion global semiconductor market. They are also strategically most important, with many governments heavily supporting chip manufacturing to serve national security interests. Last month, the South Korean government announced plans to build the world’s largest semiconductor cluster in Yongin, near Seoul.

pare won’t cut it

That may not be enough to boost Samsung’s share of logic chip foundry above 16%, although the company’s share is equal to TSMC In terms of manufacturing capabilities, maybe leading in terms of chip architecture.compete TSMCSamsung, which controls as much as 58 percent of this lucrative market, may need to make more sweeping changes to its model of making semiconductors for itself and others. The potential conflict of interest scares away customers like Apple, whose smartphones compete with Samsung.

Mr. Ferragu doesn’t expect Samsung to relinquish its lead in memory the way Intel has in logic.This is the first one Memory-Manufacturers are betting heavily on extreme ultraviolet technology, an advanced manufacturing technique. On logic and memory, it has committed to spending a total of $230 billion in capital expenditures on new fabs over the next 20 years. Still, it would be best for Samsung to rediscover its inner Lee Jae-yong. Otherwise, it could succumb to the sense of entitlement that comes with being a national champion. Just look at Intel.

Read more from our global business columnist Schumpeter:
World’s Hottest MBA Programs Reveal 21st Century Business (April 5)
Copper is the missing ingredient in the energy transition (March 30)
What Barbie Tells You About Nearshoring (March 23)

Also: If you would like to write to Schumpeter directly, please email Schumpeter at [email protected]. Here is an explanation of how Schumpeter’s column got its name.

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