Summary

• Samsung to maintain chip investment despite downturn.
• Plans to curb production and increase R&D.
• May gain market share from smaller peers.

Samsung Electronics, based in South Korea, has announced that it will not cut its investment in chips for this year, even with the global economy causing the worst downturn in the industry in over a decade. This decision goes against the trend of other chipmakers who are reducing their spending and production output. This move has caused concerns among investors, as it suggests that Samsung, the world's largest memory chipmaker, intends to use its vast resources and superior profit margins to gain market share from its smaller competitors, such as SK Hynix and Micron.

Analyst Choi Yoo-june from Shinhan Securities stated, "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." Greg Roh, the head of research at Hyundai Motor Securities, estimated that Samsung Electronics' market share could reach the upper 40% range for DRAM chips and the mid-30% range for NAND flash memory chips in the second half of this year, compared to its current market share of 43% and 32%.

Instead of cutting its investments in response to declining demand and falling prices, Samsung signaled that it would curb its short-term production through line maintenance, equipment adjustments, and the implementation of advanced chipmaking processes. The company also stated that it would increase the proportion of its capital investment that goes into research and development. Analyst Kim Yang-jae from Daol Investment and Securities commented, "Samsung, in a roundabout way, is saying production will decrease slightly." However, investors were hoping for a stronger production cut, causing Samsung's shares, along with SK Hynix's shares, to drop by 3% and 2.2% respectively.

Samsung's capital spending in 2023 will remain the same as in 2022, in contrast to the announcements made by SK Hynix and Micron Technology that they would be slashing their investments. Taiwan Semiconductor Manufacturing, Samsung's bigger rival in contract chipmaking, has also announced a reduction in spending.

The technology industry has been facing a sharp and sudden downturn in demand since late last year, as companies have reduced spending on tech products and services while consumers are spending less on discretionary goods due to surging inflation. Earlier this week, Samsung reported its lowest quarterly profit since 2014 and said that the persistent macroeconomic uncertainty will make the first half of this year challenging, although it expects demand to start recovering in the second half.

The sluggish demand and inventory adjustment will continue to impact the chip business in the first quarter, while smartphone demand is likely to decline year-on-year due to the economic slowdown in major regions. With memory chip prices falling by double-digit percentages in 2022, Samsung's chip profit tumbled to about 270 billion won in the fourth quarter from 8.83 trillion won a year earlier, marking the lowest since the first quarter of 2009. Some analysts predict that the chip business could book a loss in the first quarter, which could pull Samsung's overall profit below that of the fourth quarter.

In the mobile sector, Samsung reported that its fourth-quarter profit fell to 1.7 trillion won from 2.66 trillion won a year earlier, as the decline in low- and mid-end smartphone sales was greater than expected. The company plans to unveil its latest Galaxy S flagship smartphones later this week. Despite the challenges in the global technology industry, Samsung's announcement of not cutting its investments in chips highlights its commitment to maintaining its market leadership and staying ahead of its competitors.