Source: Content compiled from FT by Semiconductor Industry Observer (ID: icbank), thank you.
Samsung Electronics has assured the market the competitiveness of its semiconductor business after investors, analysts and employees issued a series of warnings that the South Korean company is losing its technological advantage.
This South Korean conglomerate is a global market leader in memory chips and is ambitious to narrow the gap with its main competitor TSMC in the foundry field. In the foundry field, the company signed contracts to produce chips designed by others.
To illustrate the importance of the company to the global economy, U.S. President Joe Biden visited his Pyeongtaek semiconductor factory during his 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. Analysts say the two companies are disappointed that Samsung cannot provide a stable number of 4-nanometer and 5-nanometer CPU chips.
According to data from market research firm TrendForce Consulting, TSMC occupied 54% of the OEM market share in the first quarter of 2022, more than three times Samsung's market share.
Last year, Samsung announced a foundry chip plan to invest 17.1 billion won (USD 151 billion) by 2030. But its Taiwanese rival plans to invest as much as $44 billion this year, compared with Samsung’s estimated $12 billion, according to Seoul-based SK Securities.
In the DRAM business, Samsung's traditional advantage is that its competitors Micron Technology and SK Hynix have launched some of the most advanced chips faster. DRAM technology supports short-term storage of graphics, mobile and server memory chips.
Problems with Samsung's flagship Galaxy S22 smartphone launched in February show that the South Korean group also lags behind Apple in hardware competitiveness, while Samsung's Exynos 2200 mobile processor chip launched this year have disappointing performance and sales.
Investors including hedge funds Petra Capital Management and Dalton Investments expressed concerns about what they said about Samsung’s rigid corporate culture under Samsung’s vice chairman and de facto leader Lee Jae-yong.
They believe the company puts rapid development and cost savings above quality and innovation.
“Designing your own chip requires creativity and engineering capabilities, but Samsung’s risk aversion culture has been deepened under Lee Jae-yong’s leadership, and engineers avoid new attempts to innovate,” said Chan Lee, managing partner at Seoul-based Petra Capital Management.
4 A junior engineer working on Samsung's semiconductor technology development team wrote to the company's leadership complaining about the immense time pressure of Samsung researchers to achieve the "impossible" goal of developing new technologies and products, as well as a "feeling of failure." "He said these emotions were permeated into the organization.
"It seems that the highest decision makers cannot grasp the root cause of the problem," the engineer added. "I have heard quite a few stories about 'crisis', but I think this moment is more dangerous than ever before. The culture of design companies and factories is crucial to success. These talented engineers need the right motivation, direction and leadership,” Dylan Patel, chief analyst at SemiAnalysis, wrote in a recent report. He blamed Samsung’s problems on a “toxic” culture in which different business units “faced mistakes” to blame each other for their weaknesses in the non-memory space.
Since 2019, Samsung’s share of smartphone app processors has almost halved since 2019, ranking fourth in the last year with a share of 6.6%, compared to 37.7% for Qualcomm, MediaTek’s 26.3% for Apple’s 26%.
"[Samsung]'s technological advantages are disintegrating," Patel wrote. "Samsung is declining in every aspect of technology development, including one area where they have historically beaten all their competitors, D-Ram. ”
Samsung Electronics reported operating profits in the second quarter of 2022 were lower than expected as inflation curbs consumer demand for electronic devices.
It is also ready to cope with weaker demand for global price increases after a surge in the pandemic-driven tech industry in the past two years.
But company executives argue that its memory business still has a technical advantage over its competitors, citing it faster to produce memory chips using extreme ultraviolet lithography, and its dominant DRAM market share is about 40%.
Samsung vice president of OEM business Jiang Wenxiu described the market’s concerns about losing key customers as “exaggerated” and told analysts in April that it had a backlog of orders over the next five years, eight times the revenue last year from the business.
Analysts said TSMC's faster transition to mass production of 4nm and 5nm chips has affected the ability of the South Korean company to produce enough cutting-edge chips for its most important customers.
But Samsung told the Financial Times it is now able to produce stable quantities of chips and will "maximize" supply. An executive told analysts Thursday that the company is "reorganizing" its chip design business to enhance its long-term competitiveness.
Earlier this week, the company held a ceremony to celebrate its first shipment of 3nm chips, beating TSMC to bring the next generation of non-memory chips to the market.
“If Samsung can increase the yield on advanced chips, it still has a chance to attract customers again,” said James Lim, an analyst at California hedge fund Dalton Investments. “No one wants to take the risk of relying entirely on TSMC.”
Samsung also said it is working to create an “inclusive challenge culture” through “open communication” with its employees. It said it will continue to discuss the company's vision and business direction with its employees.
The company is optimistic that, as a descendant of the company's founding family, Lee will be pardoned by President Yoon Seok-yeol next month.
Lee was released from prison on parole last year and has served 60% of his sentence for bribing former President Park Geun-hye to ensure his family controls Samsung Electronics.
But his employment and business activities are still limited, which complicates his ability to effectively oversee the management of the huge Samsung group. Traditionally, presidential amnesty was awarded before South Korea’s Independence Day in mid-August.
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