Samsung doesn’t laugh even if DRAM prices go up… What about smartphone production due to lack of chips?

◆ Samsung Electronics 1st quarter surprise performance ◆

Samsung Electronics recorded an earnings surprise that exceeded the expectations of experts with provisional sales of 65 trillion won and operating profit of 9.3 trillion won in the first quarter of last year. However, it is analyzed that’semiconductor uncertainty’ loomed in the future of Samsung Electronics as the global semiconductor supply-demand crisis far exceeded expectations and hit the automobile and information technology (IT) industries.

While the prices of DRAM, NAND flash, and consigned semiconductor production (foundry) are on the rise, the cost of finished products such as smartphones, home appliances, and TVs are expected to rise and production disruptions will occur.

Compared to the same period of the previous year, Samsung Electronics’ 1Q results increased 17.48% in sales and 44.19% in operating profit. Experts estimate that the semiconductor that supported Samsung Electronics’ earnings slowed unexpectedly and that smartphones and home appliances led the profits. This situation is expected to reverse from 2Q. First of all, DRAM and NAND prices, which account for the majority of Samsung Electronics’ semiconductor business revenue, are expected to rise sharply from 2Q due to the semiconductor supply and demand turmoil. The spot price of DRAM for PC has settled at around $4 in the first quarter of this year for the first time since April 2019. From the second quarter, the spot price and the fixed transaction price with a lag of 2 to 3 months will jump together.

Market research firms DRAM Exchange and Trend Force predicted that not only mobile and PC DRAM, but also the price of server-use DRAM that will enter the data center, surge up to 20% in this quarter alone, and that the price of NAND, which has been stagnant, can rise by up to 8%. Recently, it is known that NAND orders for data centers have also increased. Doh Hyun-woo, a research fellow at NH Investment & Securities, said, “The trend of one PC per person is spreading due to the increase in non-face-to-face demand, and PC sales this year are expected to increase by more than 10% compared to the previous year.” Investment will also increase,” he explained.

Samsung Electronics’ foundry plant is also active enough to sign a production contract after waiting several months. At present, domestic and overseas foundry companies, including TSMC and DB HiTek, are in the situation of raising the transaction price by 20-30% for each new contract as orders are overcrowded. In this situation, similarly to Samsung Electronics, the company’s foundry sales this year are expected to break the record of last year (about 17 trillion won), which was a record high, and exceed 20 trillion won. In addition, Samsung Electronics is known to have gradually improved the yield of processes below 5 nanometers (nm·1 nm is 1 billionth of a meter) with high profitability compared to the beginning of the year, and operating profit is also expected to improve further.

However, the disruption in supplying semiconductors to Samsung Electronics, which does both IT finished products and semiconductor business, is a’double-edged sword’. Samsung Electronics is expected to start disrupting production of IT devices including smartphones from this quarter due to the lack of core components such as semiconductors and printed circuit boards (PCBs). As a result of the Eugene Investment & Securities survey, Samsung Electronics’ scheduled production of smartphones has recently started to decline.

In particular, the production disruption caused by the temporary shutdown (shutdown) of Samsung Electronics’ plant in Austin, Texas from February 16 to the end of last month is expected to adversely affect the IT and mobile (IM) division of Samsung Electronics from 2Q. The Austin plant mainly makes 5th generation (5G) mobile communication radio frequency integrated circuits (RFICs) and organic light emitting diodes (OLEDs) display driving integrated circuits (DDI). This shutdown is expected to bring production disruption to the global smartphone industry, including Samsung Electronics as well as Apple. Trend Force predicted that global 5G smartphone shipments could decrease by 30% compared to the same period last year.

In addition, Samsung Electronics is on the verge of not being able to produce the mobile application processor (AP), the brain of smartphones, as much as the scheduled amount due to the semiconductor supply disruption. Samsung Electronics’ consumer electronics (CE) division, which is in charge of household appliances and TVs, is also likely to suffer from concerns about rising costs and production disruptions due to the impact of the semiconductor turmoil. Lee Seung-woo, a research fellow at Eugene Investment & Securities, said, “In the second quarter, Samsung Electronics’ IM and CE performances are slowing, and semiconductors are showing signs of a big jump in performance thanks to the effect of resolving the Austin shutdown situation and improving foundry yields.”

In the midst of this, competition for supremacy between the US and China, which is in a tug-of-war over attracting high-tech semiconductor factories, is also a factor pressing Samsung Electronics. Joe Biden, who proclaimed the “promotion of US semiconductors,” is scheduled to call the executives of global IT and finished car companies including Samsung Electronics on the 12th (local time) to check the semiconductor supply and demand situation. At this time, there is a possibility that Samsung Electronics will demand a decision to expand production bases in the US, additional investments, and restrict the modernization of factories in China. It is reported that China has also requested Samsung Electronics for additional investment in the Xian NAND plant. An official in the semiconductor industry said, “The Biden government will imposed stricter sanctions sooner or later to stop China’s development of semiconductors.”

Another external variable that threatens Samsung Electronics is the competition for memory technology with Micron and SK Hynix. There is a high sense of crisis as Micron and SK Hynix announced ahead of the development and production of high-tech DRAM and 7th-generation 176-layer stacked (V) NAND in the early 10nm stage.

[이종혁 기자 / 박재영 기자]
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