The Samsung logo on its office building in Seoul, South Korea. Picture: REUTERS
The Samsung logo on its office building in Seoul, South Korea. Picture: REUTERS

Seoul — Samsung Electronics plans to invest $116bn in non-memory chips by 2030to cut its reliance on the volatile memory chip market and develop chips to power self-driving cars and artificial intelligence-enabled devices.

The plan underscores the South Korean firm’s ambition to challenge bigger rivals — Taiwan’s Taiwan Semiconductor Manufacturing (TSMC) in contract chip manufacturing and San Diego-based Qualcomm in mobile processing chips — as the memory chip market contracts sharply after years of an unprecedented boom.

Global semiconductor makers are in a race to produce powerful chips to support new technologies such as fifth-generation (5G) mobile networks, connected cars and artificial intelligence (AI).

In March, US chip supplier Nvidia agreed to buy Israeli chip designer Mellanox Technologies for $6.8bn, beating rival Intel in a deal that would help Nvidia boost its data centre and AI businesses.

Samsung, which has expanded its chip business largely through organic investment, said on Wednesday its 133-trillion won ($116bn) spending will comprise 73-trillion won for domestic research and development and 60-trillion won for production infrastructure.

“The investment plan is expected to help the company to reach its goal of becoming the world leader in not only memory semiconductors but also logic chips by 2030,” it said.

Although Samsung does not disclose the breakdown of its investment in the semiconductor division, analysts said more than half of its total capital expenditure usually goes to memory chips.

In 2018, Samsung spent 29.4-trillion won in capital expenditure and four-fifths of the budget went to the semiconductor division where memory chips generated 96% of the operation’s profit.

“Samsung appears to be aggressive on the non-memory side given the size of the spending, but it is too early to tell whether this long-term plan will work out because it depends a lot on the demand situation and market conditions,” said senior analyst Song Myung-sup at HI Investment & Securities.

The aggressive investment plan in semiconductors also comes as Samsung’s smartphone business, once its biggest earnings generator, struggles to revive growth.

The world’s top smartphone maker decided this week to delay the launch of its widely anticipated foldable phone after several reviewers discovered problems with the display.

More jobs

Samsung said the chip investment will create 15,000 jobs.

The firm’s heir apparent Jay Y Lee, awaiting a supreme court decision on his bribery conviction, has been under pressure from the government to help create more jobs, as Asia’s fourth-largest economy is battling rising numbers of jobless college graduates partly due to slowing economic growth.

South Korea, the world’s biggest producer of memory chips thanks to Samsung and domestic rival SK Hynix, also wants to reduce its reliance on memory chip sales to smoothe volatile export trends.

The government is preparing its own support programme for the non-memory chip sector, an official at the industry ministry said on Wednesday, without giving further details. Local media have reported that the government announcement could come later in April.

“It is hard to figure out what Samsung really wants to focus on in terms of products, but I suspect it can be a foundry, or chips related to cameras or displays,” said Kim Sun-woo, an analyst at Meritz Securities.

With a 19% market share, Samsung is a distant second player in the foundry — or contract chip manufacturing — sector, trailing market champion TSMC, according to industry tracker TrendForce. Samsung also produces processor chips for mobile phones in a market dominated by Qualcomm and Intel.

Shares in Samsung closed down 1% on Wednesday, broadly in line with the wider market’s 0.9% fall.

Reuters