Samsung tries to reassure the markets on the competitiveness of semiconductors

Samsung Electronics reassured the markets about the competitiveness of its semiconductor business after a series of warnings from investors, analysts and employees that the Korean company is losing its technological edge.

The South Korean conglomerate is the global memory chip market leader and has an ambition to bridge the gap with its main rival Taiwan Semiconductor Manufacturing Company in the foundry sector, where companies are tasked with producing chips designed by others.

Illustrating the company’s importance to the global economy, US President Joe Biden visited his semiconductor plant in Pyeongtaek during a visit to South Korea in May.

But earlier this year the company lost its two largest foundry customers, Qualcomm and Nvidia, to TSMC, according to analysts, who suggested the companies were disappointed with Samsung’s inability to deliver stable volumes. of 4 and 5 nanometer chips that constitute central processing units of computers.

TSMC captured 54% of the foundry market in the first quarter of 2022, more than three times Samsung’s market share, according to market researcher TrendForce.

Last year, Samsung announced a Won171tn ($ 151 billion) investment plan for foundry chips by 2030. But its Taiwanese rival plans to invest up to $ 44 billion this year compared to $ 12 billion. dollars estimated by Samsung, according to SK Securities, based in Seoul.

And in the D-Ram business, Samsung’s traditionally stronghold, rivals Micron Technology and SK Hynix have been quicker to introduce some of the more advanced chips. D-Ram technology enables short-term storage for graphics, mobile and server memory chips.

Problems with its flagship Galaxy S22 smartphone, which launched in February, suggest that the South Korean group is also lagging behind Apple in terms of hardware competitiveness, while the performance and sales of Samsung’s Exynos 2200 mobile processor chips, launched this year. year, have been disappointing.

Investors, including hedge funds Petra Capital Management and Dalton Investments, have raised concerns about what they describe as Samsung’s rigid corporate culture under the leadership of Lee Jae-yong, Samsung’s vice president and de facto leader.

They argue that the company has prioritized rapid development and cost savings over quality and innovation.

“Designing your own chips requires creativity and engineering prowess, but Samsung’s risk-averse culture has deepened under the leadership of Lee Jae-yong, with engineers avoiding new attempts at innovation,” said Chan Lee, managing partner. of Petra Capital Management based in Seoul.

Lee Jae-yong, Samsung vice president and de facto leader
Investors have expressed concerns about what they believe is a rigid corporate culture under Lee Jae-yong, Samsung’s vice president and de facto leader © Jeon Heon-Kyun / Pool via AP

In April, a young engineer who worked on Samsung’s semiconductor technology development team wrote a letter to the company’s management complaining that Samsung researchers were under enormous time pressure to meet “impossible” goals to develop new ones. technologies and products and that “a sense of failure” has permeated the organization.

“It seems that the main decision maker is unable to grasp the root cause of the problems,” added the engineer. “I’ve heard a lot of ‘crisis’ stories, but I think this moment is more dangerous than ever.”

“The cultures in a design house and in a factory are fundamental to success. These genius engineers need the right motivation, direction and leadership, “wrote Dylan Patel, chief analyst at SemiAnalysis, in a recent report. He attributed Samsung’s problems to a” toxic “culture in which different business units blame themselves. each other “in the face of errors” due to their weakness in the non-memory sector.

Samsung’s share of the smartphone application processor market has nearly halved since 2019 and last year ranked fourth with 6.6%, compared to Qualcomm’s 37.7%, MediaTek’s 26.3%. and 26% of Apple, according to market research firm Strategy Analytics.

“[Samsung’s] the technological advantages are falling apart, “Patel wrote.” Samsung is slipping on all aspects of technological development, including the area where they have historically crushed all competitors, D-Ram. ”

Samsung Electronics posted lower-than-expected operating profit for Q2 2022 as inflation dampened consumer demand for electronic devices.

It is also bracing itself for falling demand in response to global price increases following the surge caused by the pandemic in the tech sector over the past two years.

But company executives say its memory business still enjoys a technological advantage over its competitors, citing its faster adoption of extreme ultraviolet lithography technology for memory chip manufacturing and its D market share. -Ram dominant of about 40%.

Kang Moon-soo, vice president of Samsung’s foundry business, described the market’s concern over the loss of key customers as “exaggerated,” telling analysts in April that he had an order book for the next five years, or eight times. last year’s revenue from the business.

Analysts said TSMC’s faster transition to mass production of 4nm and 5nm chips has impacted the Korean company’s ability to produce cutting-edge chips at sufficient volumes for its major customers.

But Samsung told the Financial Times that it was now able to produce stable quantities of chips and would “maximize” the supply. An executive told analysts Thursday that the company is “reorganizing” its chip design business to bolster its long-term competitiveness.

Earlier this week, the company held a ceremony to celebrate its first shipment of 3-nanometer chips, after beating TSMC to bring the next generation of non-memory chips to market.

“Samsung still has the ability to attract customers again if it can increase the rate of return of the advanced chips,” said James Lim, analyst at Californian hedge fund Dalton Investments. “Nobody wants to take the risk of relying completely on TSMC.”

Samsung also said it is working to create an “inclusive challenge culture” through “open communication” with employees. He said he continued to talk to employees about the company’s vision and business direction.

There is optimism within the company that Lee, a scion of the company’s founding family, will be pardoned by President Yoon Suk-yeol next month.

Lee was released from prison on probation last year after serving 60% of his sentence for bribing former President Park Geun-hye to secure control of his family over Samsung Electronics.

But he remains subject to restrictions regarding his work and business activities, complicating his ability to effectively oversee the management of the sprawling Samsung conglomerate. Presidential pardon is traditionally granted before South Korea’s independence day in mid-August.

Leave a Reply

%d bloggers like this: