The successive failed acquisitions in the semiconductor industry have put Samsung Electronics under pressure. This February was not smooth for semiconductor giant Samsung Electronics. Previously, Han Zhongxi, vice chairman of Samsung Electronics, said with confidence that the company will promote a large-scale merger and acquisition transaction in the fields of semiconductors, mobile communications, and consumer electronics. However, according to Korean media reports, Samsung Electronics’ mergers and acquisitions in the semiconductor field will also be affected by the failure of Nvidia’s acquisition of Arm. This potential acquisition is a non-memory semiconductor area that Samsung desperately needs, but now it seems that there is little hope.
Some people once described Samsung Electronics as a “half-legged giant.” Each main business line can achieve a considerable volume, but at the same time, there is a phenomenon of unbalanced development. For example, in the semiconductor business, Samsung Electronics has an exclusive share of nearly 50% of the global memory market. But once it jumps out of this field, Samsung Electronics will lose its right to speak, and the “unsupportable” Exynos chip is one example.
1. The lonely king of “memory.”
A significant factor in the rise of Samsung Electronics is to seize the opportunities of the times. In 1974, Samsung founder Li Bingzhe and his son Li Jianxi jointly invested in Hankook, the predecessor of Samsung Semiconductor. With the dual support of the “government + consortium,” Hankook changed its name to Samsung Semiconductor in 1977. After absorbing a group of Japanese semiconductor engineers, The company has built a complete integrated circuit production system.
In 1983, Samsung Semiconductor was officially merged into Samsung Electronics. It became one of the company’s leading businesses and then successfully developed Korea’s first 64K DRAM chip, taking the first step towards becoming a “memory giant.”
At that time, the two major semiconductor powers of the United States and Japan were amidst a fierce “chip war.” Japanese companies represented by Toshiba, Hitachi, and Mitsubishi completed the overtake of American companies such as Intel in the number of DRAM patents, and in 80 In the mid-1990s, it grabbed 90% of the global DRAM market.
To curb the development of Japan’s DRAM industry, the United States began to impose 100% anti-dumping duties on chips exported from Japan. Li Jianxi smelled the signal and took the initiative to show his favor to the US government. After that, under the persuasion of the public relations team, the United States imposed only a 0.74% tariff on Samsung Electronics’ DRAM products. It is worth mentioning that Japanese DRAM products were mainly aimed at the long-life mainframe market in the 1980s. Although they have long lifespans, they are expensive, while Samsung Electronics saw the popularity of microcomputers and produced low-cost products at the expense of shortening the lifespan. There is a price difference between the two DRAM products.
After that, Samsung Electronics and its Korean counterparts quickly brought a “devastating” impact to expensive Japanese products by relying on low-priced products. By 1993, Samsung Electronics officially completed the overtake of Japanese companies. After obtaining authorization from Toshiba in the same year, Samsung Electronics quickly joined the emerging NAND Flash (flash memory) field. They took the lead in opening the global consumer-grade flash memory market. However, Toshiba, which previously held the NAND Flash patent, still pinned its hopes on the DRAM field that Korean companies have surpassed. And finally ended up in a “lose-lose” situation. 10 years after obtaining the patent authorization, Samsung Electronics’ global market share of NAND Flash has reached an astonishing 54%. In the early 21st century, the massive demand for memory and storage brought by consumer electronic products such as personal computers and mobile phones has brought huge returns to Samsung Electronics.
In 2017, Samsung Electronics pulled Intel from its monopoly for 25 years with a revenue of US$68.825 billion, ranking first in the global semiconductor industry for the first time. The memory/memory business contributed two-thirds of the company’s profits.
Looking at Samsung Electronics from a current perspective, this company has grown into an unstoppable giant, and it is difficult to associate it with a “crisis.” But even the mighty warrior Achilles has shortcomings. Samsung Electronics is no exception.
2. the supply chain, Samsung Electronics’ “helpless.”
Excessive reliance on the memory industry has made Samsung Electronics miss the opportunity to build a complete semiconductor industry chain. Upstream raw materials and equipment are highly dependent on the international supply chain, and its downstream packaging factories cannot be reassured.
In addition, the memory market itself will have price fluctuations due to external factors, which is undoubtedly an unpredictable time bomb for Samsung Electronics. In the Japan-South Korea trade friction incident in 2019, Samsung Electronics was regulated by Japanese raw material companies, resulting in the inability to import high-purity hydrogen fluoride and photoresist materials, which eventually led to the cessation of production of NAND Flash products.
Of course, reliance on the memory industry and lack of supply chain are common problems for the entire Korean semiconductor company. But in Samsung Electronics, the anxiety expressed by this weakness is more evident than that of other Korean semiconductor companies.
After solidifying its monopoly position in memory, Samsung Electronics began to seek out new businesses that “make up for shortcomings.” In 2005, Samsung Electronics set foot in the foundry business and made rapid progress after getting on the “thighs” of Apple and Qualcomm, surpassing GF and UMC all the way. Becoming the only semiconductor manufacturing company that can compete with TSMC for the most advanced processes of 5nm and below, In addition, Samsung Electronics has also begun to expand the use of self-developed chips. On the one hand, it recommends Samsung chips to other manufacturers. On the other hand, it ambitiously abandoned the authorized ARM architecture and turned to self-developed “Mongoose” architecture.
At first, with its muscular financial strength, Samsung did make some achievements on these two roads. However, over time, Samsung’s foundry business suffered from yield and capacity problems, and self-developed chips also performed mediocre-for example. The latest Exynos 2200, despite the help of AMD, still failed to escape the “rollover”; in fact, the reputation of the Exynos series chips has already plummeted, and the self-developed architecture group has been forced to dissolve. Aside from the strength gap with its competitors, these tentative business expansions of Samsung Electronics are more like a “sideline” serving the main business. Once constrained by the supply chain, these side businesses will face the same supply chain crisis as memory businesses.
In addition to “internal worries,” Samsung Electronics’ “foreign troubles” have also been highlighted in recent years. In the traditional advantage field of “memory/storage,” Samsung Electronics began to be challenged by other manufacturers one after another. In 2020, SK Hynix, South Korea’s second-largest semiconductor company, acquired Intel’s flash memory business. After that, its global market share quickly exceeded 20%, becoming the world’s second-largest NAND Flash manufacturer after Samsung Electronics.
Compared with Samsung Electronics, SK Hynix is at a disadvantage in technology and size. Still, behind it is the financial guarantee of the three major groups of SK, Hyundai, and LG, which can firmly maintain its market share and prevent Samsung Electronics. of a single-family. After getting the help of Intel’s flash memory business, SK Hynix also has more confidence to start challenging Samsung Electronics. At the same time, it can bring pressure to foreign storage companies such as Kioxia and Western Digital.
Of course, foreign companies such as Kioxia, Western Digital, and Micron are also rushing to the market share of Samsung Electronics. Including the rise of newcomers such as the Chinese company Yangtze Memory, which has also brought new changes to the storage market in recent years. Samsung Electronics, standing high, is at risk of being overtaken at any time.
3. Samsung Electronics, which missed the chip, began to increase the number of semiconductors
According to news on February 9, Samsung Electronics’ consolidated revenue in the fourth quarter of 2021 was 76.57 trillion won, a year-on-year increase of 24.39%, creating a new high; operating profit was 13.87 trillion won. In the fourth quarter, Samsung’s semiconductor business recorded consolidated revenue of 26.01 trillion won and an operating profit of 8.84 trillion. For the whole year of 2021, Samsung Electronics’ revenue reached a record high of 279.6 trillion won (about 1.48 trillion yuan); operating profit was 51.63 trillion won (about 272.606 billion yuan).
Samsung Electronics invested 43.6 trillion won (about 231.516 billion yuan) in equipment in the semiconductor field last year, ranking first in the world.
1. Samsung “casts a wide net,” investing nearly 160 trillion won in 2020
On August 13, 2021, 53-year-old Samsung Electronics vice-chairman Lee Jae-Yong was released on parole. A few days later, Samsung Electronics stated that the company will “largely invest in companies designated as ‘nationally important.”
Two hundred forty trillion won ($205.64 billion) will be invested over the next three years to expand the company’s influence in fields such as biopharmaceuticals, artificial intelligence, semiconductors, telecommunications, and robotics. The company hopes to use the investment to bolster its leadership in chips while pursuing more growth opportunities in new areas like next-generation telecommunications and robotics. It is worth mentioning that 180 trillion won will be invested in South Korea in the budget.
Samsung said it would “actively conduct large-scale acquisitions to consolidate its leadership in the company’s target businesses.” According to the data, the company is currently sitting on about 200 trillion won in cash or cash equivalents.
As early as August 2018, Samsung announced that it would invest 180 trillion won in the next three years to revitalize the national economy and emphasized that 130 trillion won would be invested domestically. In addition, the company has decided to hire more than 40,000 employees directly. Now the “three-year period” has arrived. The company said that due to increased investment in the semiconductor business, its domestic target of 130 trillion won might exceed at least 7 trillion won, reaching 137 trillion. The target of 40,000 jobs has been completed by 80%. , the overall recruitment target is likely to be achieved this year.
2. Review Samsung’s “big money” operations over the past year:
In April 2020, Samsung Electronics announced its vision of “becoming the world’s No. 1 logic chip manufacturer by 2030”, investing 133 trillion won in enhancing its LSI systems and foundry business competitiveness. In October 2020, Samsung Display Co. announced plans to invest 13 trillion won in upgrading its LCD manufacture facilities and producing advanced quantum dot display panels by 2025. Samsung Biologics Co., described by Korean media as “the most promising subsidiary of the group” in the biological field. its CDMO division announced earlier this week that it would spend 1.7 trillion won on building Moderna’s new crown in Songdo, Incheon Vaccine production plant. “Samsung aims to gain a 30 percent global market share in CDMO,” the company said in a statement. With the growth of performance, the stock price also rose. The average share price of 107 companies increased by 46.9% in the first half of the year. Mingwei Electronics increased by more than four times, and Fuman Electronics, National Technology, Jinchen Co., Ltd., and Guoke Microelectronics increased by more than 200%.
In terms of funds, semiconductor funds are known as “scumbags” have also recovered collectively. The average increase of five semiconductor ETFs during the year is as high as 40.38%, and the addition of more than 500 funds that have allocated related industries has also reached 24%. Cai Songsong, who is in charge of Lion’s growth, is even more “disgraceful.” With a 50% increase in the year, investors are “competing.” In the fund’s second quarterly report, Cai Songsong continued to express his optimism about the semiconductor market outlook: “This is a semiconductor chip. The time dimension is likely to exceed expectations. In addition, as the domestic-related technology products are gradually conquered and the accelerated promotion of domestic substitution is superimposed, the industry is about to enter a dividend period in which both the total market volume and the domestic market share will increase. “And look overseas. At present, the results of the international semiconductor industry’s leading companies in the second quarter are released. Guo has Securities has conducted a performance analysis of 20 US semiconductor core companies: Overall, the 20 core companies achieved a total operating income of 179.49 in 2021Q2. US$7.733 billion (+49.68% year-on-year) and net profit of US$7.733 billion. Guo has Securities believes that some areas of the current industrial chain still have price-raising momentum, and the industry’s prosperity will continue, giving the industry a “recommended” rating.
3. A comprehensive “chip shortage”? The market needs to be calmly analyzed
At present, the global shortage of chips has not yet been effectively alleviated, and the prosperity of the semiconductor industry is still improving. On the supply side, the re-emergence of the epidemic in major semiconductor producing countries in Southeast Asia, such as Malaysia, has brought uncertainty to the production capacity of automotive chips. Previously, the market expected that automotive chips are expected to be effectively relieved in the second half of this year. At present, it may delay the time to restore the balance of supply and demand of automotive chips until after the second quarter of next year, and the prosperity of the semiconductor industry has exceeded expectations. At present, the production capacity of fabs and packaging and testing plants is in short supply, which has the most severe impact on the collection of MOSFET and MCU products. On the demand side, under the trend of automobile electrification, intelligence, and networking, the demand for MOSFET, MCU, and other products continues to rise. The price hike that may be set off again at the end of the third quarter is expected to boost the performance of domestic companies, and the prosperity of the power and analog chip industries remains high.
Based on this, many investors mistakenly believe that the chip industry suffers from a comprehensive shortage of supply, thinking that in the long run, the sector will only make money without losing money. Is this the case? To alleviate the problem of chronic supply shortages, the international chip giants have moved quickly to increase production, so the inventory has also increased significantly. The downstream of the chip industry is faced with various needs in all aspects of life, and each demand is produced on a different process capacity, so the supply and demand constraints of each separate chip are entirely different. We can neither generalize nor ignore the risk of partial oversupply. From the objective interpretation of relevant remarks and analytical viewpoints, it is still necessary to specifically look at which type of chip.
Historically, the chip industry has experienced many significant swings, and once the market cooled, excess capacity built up during boom times weighed on manufacturers. “The expansions currently underway will come online in two to three years, which means they could end up being a drag on the company.”