Samsung Plans $18.63 BN Investment for Memory Chip Business

On Tuesday, Samsung Electronics Co Ltd, the world’s biggest maker of memory chips, announced that it is planning to invest 21.4 trillion won, or $18.63 billion, to expand its semiconductor manufacturing facilities in South Korea.

Samsung’s announcement goes along the start of massive chip production from its facility in Pyeongtak. The upsurge of the automotive industry, artificial intelligence, and demand for Internet of Things are expected to occur for semiconductors in the next years. Semiconductors generated 46.5% of the company’s operating revenue in 2016, according to a report.

By 2021, Samsung said that it will spend an extra 14.4 trillion won, or $12.5 billion, to expand and increase the capacity in its memory chip plant in Pyeongtak in south of Seoul, which has already witnessed a 15.6 trillion won, or $13.5 billion, of spending. It is one of the largest semiconductor production lines in the world, which broke ground two years ago.

The Suwon-based company will also commit 6 trillion won to grow and upgrade production in Hwaseong, while it also considers a new display manufacturing location for organic light-emitting diodes by 2018 and a second production line at Xi’an in China, in response to booming demand for long-term data storage chips.

In smartphones, Samsung uses organic light-emitting diode screens for its high-end Galaxy smartphones. The advanced displays have allowed Samsung to differentiate its Galaxy phones from rivals with curved forms. Samsung is the dominant supplier and organic light-emitting diode screens for mobile phones are a profitable business for the company, aside from its memory chip.

Last year, the company experienced a hit to its reputation after a degrading mass recall of its Galaxy Note 7 smartphones over faulty, exploding batteries. Despite that, the company was able to report in April its biggest quarterly net profit in more than three years. It accounted for more than 40% of global memory chip sales in the first quarter of this year.

Several analysts said that Samsung’s production technologies are at least one year ahead of rivals such as Toshiba Corp and SK Hynix Inc. Samsung always invests more than $10 billion in semiconductors yearly, helping build its lead, and analysts said the latest investment seeks to broaden the gap.

Some analysts say a global shortage of chips may continue throughout 2017, driving prices higher and benefiting major suppliers such as Samsung and other South Korean chip maker, SK Hynix.

“I believe NAND market conditions will continue to favor suppliers until 2020,” said HMC Investment analyst Greg Roh.

Average prices for DRAM chips used in PCs and servers, and NAND flash chips used in handsets are expected to rise 53% and 28%, respectively this year, according to market researcher IC Insights.

Samsung’s investment plans came after newly elected South Korean President Moon Jae-In taps local businesses to make more jobs and help revive the economy.

Samsung said that its investment would help generate as many as 440,000 jobs through 2021, and this will help strengthen Asia’s fourth-largest economy.

As of May 2017, Samsung Electronics Co Ltd, founded in 1969, generated a total market capitalization of $254.3 billion.

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