Monday, May 17, 2010

Samsung Plans Record Investments to Widen Lead in Chips, LCDs


Samsung Electronics Co. plans to outspend Intel Corp., International Business Machines Corp. and Sony Corp. combined to widen its lead as the world’s largest maker of memory chips and flat-panel displays.

Capital expenditure will jump to 18 trillion won ($15.6 billion) this year from 8 trillion won in 2009, Suwon, South Korea-based Samsung Electronics said in a statement today. Including research and development, spending will increase to 26 trillion won, it said.

The largest spending budget in the technology industry may help Samsung build on its market lead and force smaller competitors to boost investments to keep up. Samsung’s purchases may be a boon for equipment makers including Applied Materials Inc. as the industry recovers from the global recession.

“I believe this massive amount of spending during tough times will cement Samsung’s leadership,” said Kim Young Joon, who oversees $932 million of stocks at NH-CA Asset Management in Seoul as head of equity investment, including Samsung shares. “The investments could pressure competitors to follow suit, which could be a burden for smaller rivals that aren’t as financially strong as Samsung.”

Samsung fell 3.2 percent to close at 784,000 won on the Korea Exchange, compared with the benchmark Kospi index’s 2.6 percent decline.

‘Substantial’ Increase

Samsung, which said last month it would “substantially” increase its 2010 spending budget, plans to invest 9 trillion won in the memory-chip business, compared with an earlier budget of 5.5 trillion won. Spending on liquid-crystal displays will rise to 5 trillion won from 3 trillion won, it said.

Investments for semiconductors will include a new production line for memory chips and adding capacity to an existing manufacturing facility, Samsung said. The company also plans to build a new production line for LCDs on so-called eighth-generation technology to meet rising demand.

Today’s decision “was made to address indications of improving market conditions throughout the global consumer electronics and IT industries, while further strengthening Samsung’s leadership in memory semiconductors and LCD panels,” Samsung said in the statement.

Samsung, which had about 20 trillion won in cash, equivalents and short-term investments at the end of March, is able to spend “aggressively” compared with rivals who are still recovering from the industry’s three-year slump, according to Lee Sun Tae, a Seoul-based analyst at Meritz Securities Co.

Return to Profit

The computer-memory chip industry posted net losses for 10 consecutive quarters before returning to a profit last year, El Segundo, California-based researcher, ISuppli Corp. said this month. Weaker demand amid the economic downturn prompted manufacturers to cut production and investment plans, helping ease the industry glut.

Samsung posted losses at its semiconductor division in the fourth quarter of 2008 and the following three-month period after chip prices declined. That compared with seven consecutive quarterly losses for Hynix between 2007 and 2009 and Micron’s three years of losses.

Samsung said last month it would “substantially” increase spending in 2010 after first-quarter net income jumped almost sevenfold to a record.

Samsung’s investment in chip-making technology has helped the company reduce manufacturing costs and make faster semiconductors. Demand for personal computers, projected to increase 20 percent this year by researcher Gartner Inc., is also driving up computer-memory prices.

“Distributed Unevenly”

“The benefits of the current up-cycle will be distributed unevenly as the gap between first tiers and second tiers has widened, in terms of both capability to add capacity and technology,” Chung Chang Won, an analyst at Nomura Holdings Inc., wrote in a report last month.

Samsung had a 32.3 percent share of the global dynamic random access memory, or DRAM, market in the first quarter, compared with second-ranked Hynix’s 21.5 percent, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for semiconductors. Japan’s Elpida Memory Inc. had a 17.4 percent share, while Micron had 14.1 percent.

While investment by computer-memory chipmakers will almost double to $8.4 billion this year, it’s still 32 percent less than 2008, according to Taipei-based Dramexchange.

Don’t Have Potential

Samsung’s spending isn’t a sign that the market “is going to fall apart,” according to Song Myung Sup, an analyst at HI Investment & Securities Co. “If the smaller companies join and increase investment together, then that can be a danger signal. But right now, the others don’t seem to have the potential.”

Global revenue for DRAM, which temporarily holds data and helps computer processors run multiple programs simultaneously, will probably climb 40 percent to $31.9 billion this year, ISuppli Corp. said in February.

Samsung, the world’s largest LCD maker, is also boosting spending for the flat screens to meet rising demand. LG Display Co., the second-largest, last month raised its budget by about 38 percent to 5.5 trillion won for 2010.

Global shipments of LCD TVs may rise 24 percent to more than 180 million units in 2010, Austin, Texas-based DisplaySearch said in March.

Samsung in April forecast profit, which exceeded that of rival, iPhone-maker Apple, in the latest quarter, will probably rise in the current period on sales of chips, flat-screens, TVs and mobile phones.

Analysts predict Samsung’s earnings growth will probably extend until the third quarter, while higher memory-chip and flat-panel prices will help the company post record profit in 2010.