Yahoo Finance Samsung Matches Record Sales With Big Spending on Chip Tech
(Bloomberg) -- Samsung Electronics Co. is stepping up spending on advanced chipmaking technology as it sees growing demand for its smartphones, displays and memory products.
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South Korea’s biggest company reported 43.6 trillion won ($36.3 billion) in semiconductor capital expenditure in 2021, eclipsing rivals as it acquired extreme ultraviolet lithography (EUV) machines to pursue aggressive expansion of its most lucrative memory and system chipmaking. It expects a recovery in server and PC memory demand and said foldables are already helping its sales growth, though declined to offer a forecast due to the high degree of uncertainty around supply chains and the pandemic.
Samsung had another quarter of record sales in the final three months of the year, with net income rising to 10.64 trillion won, according to a statement Thursday. Analysts had predicted 11.1 trillion won on average, according to estimates compiled by Bloomberg. Operating profit improved by 50% and sales were up 23%. The company paid special bonuses to employees in late December.
Shares fell as much as 2.7% in Seoul on Thursday, less than the wider KOSPI index, which was down 3.4%.
A consistent theme across Samsung’s business divisions was rising demand matched by increasing expenses that undercut profitability. Foldables pushed mobile sales up, but Samsung spent more on marketing. The foundry division that makes chips for outside customers set a quarterly record, but the outsize spending on ASML Holdings NV’s pricey EUV machines clipped profits.
The rising costs of raw materials and logistics affected margins in the consumer electronics business, which also set a new quarterly sales high, and Samsung expects that situation to persist through 2022.
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Samsung and memory-making rival SK Hynix Inc. fell in the latter half of last year on fears about price volatility, rising inventories and a cyclical downturn. Price drops proved more moderate than expected, however, as chip usage broadened across industries and memory makers took preemptive steps to stabilize supply and forestall price shocks. Samsung’s foundry business -- producing chips for customers without their own semiconductor plants -- is also helping stabilize revenues.
“There are still various variables that could impact supply and demand this year, including at what pace the parts supply issue will be eased, the possibility of additional increase in raw material prices, and various geopolitical risks,” Jinman Han, executive vice president of the semiconductor business, said during Samsung’s analyst call. “We also notice a clear tendency that memory market cycle height and length are getting shorter than before. Considering that our inventory remains to be as fair levels, these are signs that indicate possible stabilizing of the memory market.”
A lockdown in the central Chinese city of Xi’an in December pushed Samsung to adjust operations at its NAND production plant and also affected output at rival Micron Technology Inc.’s facility in the city. That’s raised expectations that memory prices could rebound earlier than expected if the Chinese government’s quarantine measures continue. Analysts project prices may stabilize from the second quarter at the earliest.
“To mitigate potential risks in logistics, NAND Flash buyers are now more willing to accept a narrower decline in contract prices in order to obtain their products sooner,” TrendForce said in a Jan. 24 note. “However, as the Xi’an lockdown has not noticeably affected the local fabs’ manufacturing operations, the movement of NAND Flash contract prices going forward will likely remain relatively unaffected by the lockdown.”
Samsung said it normalized operations of its chip production line in Xi’an from Wednesday as the Covid situation improved.
The Korean giant dethroned Intel Corp. and claimed the world’s largest chipmaker title in terms of revenue for the first time since 2018, according to Gartner. Samsung’s semiconductor sales rose 31.6% last year and it accounted for 13% of global semiconductor market share, while Intel made 0.5% growth and took 12.5% of market share, the research firm said.
(Updates with stock trading in fourth paragraph)
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