Samsung warns chip industry headed for rocky close to 2022

An aerial view of the Samsung Electronics’ chip production facilities at Hwaseong, South Korea

Samsung Electronics is warning that the semiconductor industry could be in for a rocky close to 2022.

A senior executive at the world’s largest maker of memory chips said the outlook for the second half of the year is gloomy, and Samsung is not yet seeing momentum for a recovery next year. Rival chip makers such as SK Hynix and Micron Technology have cautioned about slowing demand in recent weeks.

“The general perception earlier this year was that the second half of would be better than the first half, but from April to May, it changed drastically,” said Kyung Kyehyun, head of Samsung’s device solutions division, which oversees the company’s semiconductor operations. “The world is changing so quickly.”

Kyung made the comments during a rare briefing at the company’s new chip fab in Pyeongtaek on Wednesday. Samsung’s strategy is to respond faster to market changes, rather than stick to an investment plan prepared in advance, Kyung said during the event. That said, the company will do its best to keep capital expenditure steady, he added.

Samsung historically has invested heavily in new chip initiatives, which now include the foundry business to better compete with Taiwan’s TSMC for global customers. Samsung kicked off mass production of 3-nanometre chips at its foundry in June, edging out TSMC in a race to build the most advanced chips in the world. Samsung will work on improving the performance and lowering the cost of the chips as it aims to create its next-generation 3nm chips in 2024, Kyung said.

Besides a slumping chip market, Samsung is also struggling with the clash between China and the US. While South Korea has historically aligned with Washington, the tech giant counts on being able to sell chips, smartphones and other products into the massive Chinese market. Samsung has both customers and factories in China.


“It is difficult for us to miss such a market, and there are many important customers,” said Kyung. “We’re trying to find a win-win solution for everyone in the midst of this conflict.”

The US government is tightening flows of technologies to China, most recently restricting sales of artificial intelligence chips and cutting-edge chip gear to Chinese customers. It is also considering moves to restrict US investment in Chinese tech companies, while at the same time offering billions of dollars in incentives to bolster semiconductor production on American soil. Washington is demanding that any chip maker receiving a part of the federal grant refrain from manufacturing advanced chips in China for a period of 10 years. The Korean government is seeking to negotiate that with US officials.

Read: Samsung beats TSMC to 3nm chip production

As the US beefs up efforts to solidify a chip supply chain at home, Samsung announced plans for an advanced, US$17-billion chip plant in Taylor, Texas, with construction slated to start later this year.

The new plant would lure new clients with closer partnerships, Kyung said, adding the company will continue to invest in the US. Samsung has also floated the idea of a broad expansion of its semiconductor manufacturing facilities in Texas, laying out potential plans to spend almost $200-billion on 11 plants in a series of filings in the state in July.

Read: Samsung’s eye-popping spending plan: R5.7-trillion over five years

Seoul is joining working-level talks with US, Taiwan and Japan to explore ways to further corral China’s ambition become a world’s leader in chip technology and lower its dependence on the West.

On Washington’s initiative, dubbed the Chip 4 alliance, Kyung said he hoped South Korea will “seek understanding from China first, and then negotiate with the US”. But he also said: “In the long run, it may be difficult to put new equipment into our fabs in China.”  — (c) 2022 Bloomberg LP

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