Samsung seeks to reassure markets over semiconductor competitiveness


Samsung Electronics has reassured markets over 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 market leader in memory chips, and harbours the ambition of closing the […]

Samsung Electronics has reassured markets over 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 market leader in memory chips, and harbours the ambition of closing the gap on key rival Taiwan Semiconductor Manufacturing Company in the foundry sector, where companies are contracted to produce chips designed by others.

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

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

TSMC captured 54 per cent 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 ($151bn) investment plan for foundry chips by 2030. But its Taiwanese rival is planning to invest up to $44bn this year compared with Samsung’s estimated $12bn, according to Seoul-based SK Securities.

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

Issues with its flagship Galaxy S22 smartphone, launched in February, suggest that the South Korean group is also falling behind Apple on hardware competitiveness, while the performance and sales of Samsung’s Exynos 2200 mobile processor chips, which were launched this 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-chair and de facto leader.

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

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

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

In April, a junior engineer who worked at Samsung’s semiconductor technology development team wrote a letter to the company’s leadership complaining that Samsung researchers were under enormous time pressure to meet “impossible” targets to develop new technology and products, and that “a sense of failure” permeated the organisation.

“It seems that the top decision maker is not able to grasp the root cause of the problems,” the engineer added. “I’ve heard quite a few stories of ‘crisis’ but I think this moment is more dangerous than ever.” 

“Cultures at a design house and fab are critical to success. These genius engineers need the correct motivation, direction and leadership,” Dylan Patel, chief analyst at SemiAnalysis, wrote in a recent report. He attributed Samsung’s problems to a “toxic” culture in which different business units blame each other “in the face of mistakes” for its weakness in the non-memory sector.

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

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

Samsung Electronics reported a smaller-than-expected operating profit for the second quarter of 2022, as inflation damped consumer demand for electronic devices.

It is also bracing for waning demand in response to global price rises following the pandemic-driven surge in the tech sector over the past two years.

But company executives argue that its memory business still enjoys a technological edge over its competitors, citing its faster adoption of extreme ultraviolet lithography technology for memory chip production and its dominant D-Ram market share of around 40 per cent.

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

Analysts said that TSMC’s faster transition to mass production of 4nm and 5nm chips had affected the Korean company’s ability to produce cutting edge chips at sufficient volumes for its most prominent customers.

But Samsung told the Financial Times it was now able to produce stable quantities of the chips and would be “maximising” supply. An executive told analysts on Thursday that the company is “reorganising” its chip design business to strengthen its longer-term competitiveness.

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

“Samsung still has a chance to draw customers in again if it can boost the yield rate of advanced chips,” said James Lim, an analyst at California-based hedge fund Dalton Investments. “No one wants to shoulder the risk of completely relying on TSMC.”

Samsung also said it was making efforts to create an “inclusive challenge culture” through “open communication” with employees. It said it 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 receive a pardon from President Yoon Suk-yeol next month.

Lee was released from prison on parole last year, having served 60 per cent of his sentence for bribing former President Park Geun-hye to secure his family’s control of Samsung Electronics.

But he remains under restrictions concerning his employment and business activities, complicating his ability effectively to oversee the management of the sprawling Samsung conglomerate. Presidential pardons are traditionally granted ahead of South Korea’s independence day in mid-August.


Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

7 Best Perfume Gift Sets that serve as scintillating presents

Making your loved ones happy is surely a difficult task, especially if it is a special occasion, and you just can’t figure out what they have in their wishlist. Well, it is time you put that stress away and buy a perfume gift set to give it away as an […]

Subscribe US Now