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As tide turns against chip industry, Samsung forges ahead of rivals
By Se Young Lee
Apr. 26, 2016, 7:02 PM Thomson Reuters
SEOUL (Reuters) - Gloom may be settling over
much of the world's semiconductor industry but Samsung Electronics Co Ltd is
expected to cope better than most due to its strong technological edge,
enabling it to boost market share for some key products and possibly even lift
revenue.
A plunge in PC sales and slower growth for
smartphones globally has hit the sector hard, prompting Intel Corp to say this
month it would cut up to 12,000 jobs.
Qualcomm has said fiscal third-quarter chip
shipments could fall as much as 22 percent, while SK Hynix Inc on Tuesday
reported a 65 percent slide in quarterly operating income - its weakest result
in three years.
Samsung, which reports its first-quarter
earnings on Thursday, is also hurting. Chip profits - which accounted for just
under half of its overall 2015 operating income - are widely expected to fall,
with some analysts predicting a drop of more than 10 percent in January-March
from a year earlier.
But if its rivals are getting pummeled, the
South Korean tech giant is merely bruised and is in many ways benefiting as
clients shift towards premium power-conserving DRAM chips for smartphones, as
well as solid-state drives for data storage using 3D NAND chips.
"The technological gap between Samsung and
its competitors in fields such as DRAM and NAND has been widening lately, which
helps the company avoid the rate of profit decline seen at other firms,"
said Song Myung-sub, an analyst at HI Investment & Securities.
Even with a first-quarter drop of around 10
percent, Samsung's chip operating profit is expected to be nearly five times
that of SK Hynix.
The world's No. 2 chipmaker also happens to run
the world's biggest smartphone business, giving it a captive customer for its
chips that none of its rivals have.
"This is a safehouse they can go to,"
said Avril Wu, an analyst at research firm Trendforce.
Healthy initial sales for Samsung's new
flagship Galaxy S7 smartphones are expected to be the main driver of
first-quarter operating profit, which the firm has said likely rose 10.4
percent from a year earlier to 6.6 trillion won ($5.8 billion).
DOMINANT POSITION
Of its key products, analysts are most upbeat
about Samsung's NAND chip prospects. Samsung was the first to mass produce NAND
flash chips using a technology called 3D NAND, helping it assume a dominant
position in higher-margin products such as solid-state hard drives for
computers and servers.
BNP Paribas expects the South Korean firm's
NAND revenue to climb 16 percent and NAND operating profit to jump 69 percent
this year. Shipments will also likely outpace the industry average, allowing
Samsung to seize more market share, it said in a report.
The technology is already contributing to
Samsung's profits, analysts say, adding that this is not the case for main NAND
rivals Toshiba Corp, SK Hynix and Micron Technology Inc which are estimated to
be as much as three years behind.
Investors and analysts also point to Samsung's
superior production technology for DRAM chips, saying the firm is ahead of its
closest rivals by at least a year. It can mass produce smaller chips than
rivals, which boosts performance and conserves power as well as increasing the
number that can be made from a single wafer.
Samsung commanded 58 percent of the mobile DRAM
market as of the fourth quarter of 2015, according to TrendForce. Mobile DRAM
revenue also accounted for more than half of Samsung's overall DRAM sales for
October-March, TrendForce's data shows.
(Reporting by Se Young Lee; Editing by Edwina
Gibbs)
