Samsung Electronics has assured the market of the competitiveness of its semiconductor business following a series of warnings from investors, analysts and employees that the South Korean company is losing its technological edge.
The South Korean conglomerate is the global market leader in memory chips and has ambitions to close the gap with arch-rival TSMC in the foundry space, where companies contract to produce chips designed by others.
To illustrate the company’s importance to the global economy, U.S. President Joe Biden visited its Pyeongtaek semiconductor factory during a visit to South Korea in May.
But earlier this year, the company lost two of its biggest foundry customers, Qualcomm and Nvidia, to TSMC, according to analysts, who said they were unable to provide Samsung with steady volumes of 4- and 5-nanometers. Chip disappointed. The computer’s central processing unit.
According to market researcher TrendForce, TSMC captured 54 percent of the foundry market share in the first quarter of 2022, more than triple Samsung’s market share.
Last year, Samsung announced a plan to invest 17.1 billion won ($151 billion) in foundry chips by 2030. But its Taiwanese rival plans to invest as much as $44 billion this year, compared with an estimated $12 billion by Samsung, according to Seoul-based SK Securities.
In the D-Ram business, Samsung’s traditional advantage is that its rivals Micron Technology and SK Hynix have introduced some of the most advanced chips faster. D-Ram technology supports short-term storage for graphics, mobile and server memory chips.
Problems with Samsung’s flagship Galaxy S22 smartphone, launched in February, suggest the South Korean group is also behind Apple in hardware competitiveness, while the performance and sales of Samsung’s Exynos 2200 mobile processor chips this year have been disappointing.
Investors including hedge funds Petra Capital Management and Dalton Investments have expressed concern about what they say is Samsung’s rigid corporate culture under Samsung vice chairman and de facto leader Lee Jae-yong.
They believe that companies prioritize rapid development and cost savings over quality and innovation.
“Designing your own chips requires creativity and engineering, but Samsung’s risk-averse culture has deepened under Lee Jae-yong, and engineers have avoided new attempts at innovation,” said the managing partner of Seoul-based Petra Capital Management. Chan Lee said.
In April, a junior engineer working on Samsung’s semiconductor technology development team wrote to company leadership, complaining that Samsung researchers were under enormous time pressure to achieve “impossible” goals of developing new technologies and products, as well as “failures.” sense”. “Infiltrate the tissue.
“It seems that the top decision makers cannot grasp the root cause of the problem,” the engineer added. “I’ve heard quite a few stories of ‘crisis,’ but I think this moment is more dangerous than ever.”
“The culture of design firms and factories is critical to success. These talented engineers need the right drive, direction and leadership,” wrote SemiAnalysis principal analyst Dylan Patel in a recent report. He blamed Samsung’s problems on a “toxic” culture in which different business units “faced mistakes” by blaming each other for weaknesses in non-memory areas.
Samsung’s share of the smartphone application processor market has nearly halved since 2019, ranking fourth last year with a 6.6 percent share, compared with 37.7 percent for Qualcomm and 26.3 percent for MediaTek, according to market research firm Strategy Analytics. Apple was 26%.
“[Samsung’s] Technological advantages are falling apart,” Patel wrote. “Samsung is slipping in every aspect of technology development, including one area where they have historically beat all their competitors, D-Ram. “
Samsung Electronics reported lower-than-expected operating profit in the second quarter of 2022 as inflation dampened consumer demand for electronic devices.
It is also bracing for weaker demand for higher global prices after a pandemic-driven surge in the tech sector over the past two years.
But company executives argue that its memory business still has a technological advantage over rivals, citing its faster adoption of extreme ultraviolet lithography to produce memory chips, which it dominates with about 40 percent of the D-Ram market.
Jiang Wenxiu, vice president of Samsung’s foundry business, described market concerns about losing key customers as “exaggerated” and told analysts in April that it had an order backlog over the next five years, eight times last year’s revenue from the business.
Analysts said TSMC’s faster transition to mass production of 4nm and 5nm chips has affected the South Korean company’s ability to produce sufficient quantities of cutting-edge chips for its most important customers.
But Samsung told the FT it was now able to produce a steady number of chips and would “maximise” supply. The company is “restructuring” its chip design business to bolster its long-term competitiveness, an executive told analysts on Thursday.
Earlier this week, the company held a ceremony to celebrate its first shipment of 3-nanometer chips, beating TSMC to bring the next generation of non-memory chips to market.
“If Samsung can raise yields on advanced chips, it still has a chance to attract customers again,” said James Lim, an analyst at California-based hedge fund Dalton Investments. “No one wants to take the risk of completely relying on TSMC.”
Samsung also said it was working to foster an “inclusive challenge culture” through “open communication” with employees. It said it will continue to discuss the company’s vision and business direction with employees.
There is optimism within the company that Lee, a descendant of the company’s founding family, will be pardoned by President Yoon Seol-yeol next month.
Lee was released on parole last year after serving 60 percent of his sentence for bribing former President Park Geun-hye to ensure her family’s control of Samsung Electronics.
But his employment and business activities remain restricted, complicating his ability to effectively oversee the management of the sprawling Samsung Group. Presidential amnesties are traditionally granted before South Korea’s Independence Day in mid-August.