Samsung braves through the economic slowdown deemed as the worst for more than a decade by maintaining its current business position of investing in chips. At the same time, shareholders and competitors alike fear its implications.
This bold business move by the producer of the multinational gadget is in stark contrast with competitors SK Hynix, Micron Technology, and Taiwan Semiconductor Manufacturing– all of which have adopted a more conservative approach by cutting back on chip investment.
Experts note that this may be a ploy by Samsung to utilize the current recession and aggressively amass a more significant market share by pumping more of its abundant capital into its pipeline and product development.
Shinhan Securities Analyst Choi Yoo-Jun remarked, "Samsung might be seeing this time as a good opportunity to increase market share, which should help it in the long term, at the expense of SK Hynix and Micron."
Smartphone Experts Weigh In
Samsung's market share can potentially exceed its current 43% and 32% market share on DRAM chips and NAND flash memory chips, respectively, in the latter half of 2023, according to Hyundai Motor Securities Head of Research Greg Roh.
But while Samsung's intention to invest more in research and software development (R&D) seems to support the speculations, the tech giant also opted to play safe by redirecting part of its production budget to adjusting equipment, maintaining lines and advancing its existing processes in chipmaking.
This is confirmed by Daol Investment and Securities Analyst Kim Yang-Jae, who stated, "Samsung, in a roundabout way, is saying production will decrease slightly."
Yang-Jae also pointed out that investors don't think the spending cut is enough, so Samsung's shares fell by 3%. Investors are anxious because of the recent downturn in the tech industry caused by conservative consumer spending caused by rising inflation.
Inflation Hits Revenue
Incidentally, Samsung has experienced its biggest revenue loss since 2014 and outright projected a lower profit margin for the first half of this year, adding to investor worry. The chipmaker assured that it expects revenue growth later in the year.
Samsung explained that the lowering demands and ongoing inventory adjustments will affect its first-quarter profits and that smartphone demand will likely follow suit, as indicated by an 8% revenue loss. Its 2022 fourth-quarter financial report reveals a gain of 4.3 trillion won, which is the lowest in eight years.
When it comes to memory chip prices, Samsung's profits tanked from 8.83 trillion won to a jaw-dropping meager 270 billion won in the last quarter of 2022, marking it as its lowest chipmaking revenue since 2009. Its mobile sales also dropped from 2.66 trillion won to 1.7 trillion won.
Experts anticipate an even bigger loss on the horizon for the chip business, with companies experiencing loss globally. For the first quarter, graphic processor manufacturer Intel expects a lossas the computer industry is also experiencing a crashing demand for chips.
Despite the budding economic turmoil, Samsung is still on track with smartphone product development beginning with unveiling the latest model in its latest Galaxy S series this week.