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MarketScreener Homepage  >  Equities  >  KOREA EXCHANGE  >  Samsung Electronics Co Ltd    A005930   KR7005930003

SAMSUNG ELECTRONICS CO LTD

(A005930)
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Samsung Plans Long-Term Investment to Diversify Chip Strategy

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04/24/2019 | 09:59am EST

By Timothy W. Martin

SEOUL -- Samsung Electronics Co. said it would invest about $116 billion by 2030 to further diversify its semiconductor production beyond memory chips, as the company seeks new growth drivers.

The spending, which entails both research-and-development and capital expenditure, will be directed toward boosting Samsung's foundry and logic-chip operations, two areas the South Korean firm has previously pledged to cultivate. The more advanced chips give the brains to smartphones, computers and self-driving cars that increasingly need more horsepower as they integrate artificial intelligence and faster 5G networks.

Samsung, the world's largest smartphone and memory-chip maker, said annual spending would average almost $10 billion. The company didn't specify how much of the total figure represents new investment. Last year, it had pledged to invest more than $22 billion through 2020 in areas like auto-technology components and artificial intelligence.

The extra funding will push Samsung deeper into competition with rival logic-chip firms like Intel Corp., Qualcomm Inc. and Nvidia Corp., whose offerings are most widely used now. For the foundry business -- the outsourced contract manufacturing of chips -- the extra investments will arm Samsung against the industry's dominant player, Taiwan Semiconductor Manufacturing Co.

The Suwon, South Korea-based company has come to rely heavily on memory chips as its cash cow, leaving it vulnerable when the market cools as is the case now. Prices for two major types of chips that Samsung dominates, called DRAM and NAND Flash, have fallen about 20% each during the first three months of the year versus the prior quarter.

The price drops extend a decline that began last year, leading Samsung earlier this month to forecast a 60% drop in first-quarter operating profits from the prior year.

"Samsung is making this investment to make their business more stable," said Akira Minamikawa, a director at IHS Markit in Tokyo, who researches the semiconductor market.

Memory chips account for about a third of the roughly $475 billion semiconductor industry world-wide, according to Gartner Inc., a market researcher. That suggests a potentially lucrative market for Samsung if it can successfully branch deeper into the other areas.

Samsung is seeking to boost its foothold in two semiconductor markets where it has yet to become dominant. It is the distant No. 2 player in the foundry business to TSMC, which controls about half of the market, according to TrendForce, which tracks semiconductor sales. Samsung represented about 19% of the market during the first three months of 2019, TrendForce said.

The business requires heavy investment, with expensive equipment and massive facilities, betting that customer demand will eventually come in the future. The race to manufacture the most cutting-edge semiconductors, demanding better performance on a tinier chip, is down to TSMC, Samsung and Intel, industry analysts said.

"Samsung is basically declaring its movement towards increasingly advanced production processes in the chip industry," said Kurt Chen, a TrendForce semiconductor analyst.

The other focus for Samsung's investment is with logic chips that give devices or data servers their computing power. Samsung has its in-house Exynos chip, though its use is largely limited to its high-end smartphones.

Samsung said the new investment will create 15,000 jobs, which are mostly expected to be in South Korea.

Write to Timothy W. Martin at timothy.martin@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
5G NETWORKS LIMITED 2.53% 0.81 End-of-day quote.66.67%
GARTNER INC -1.22% 158.56 Delayed Quote.25.56%
SAMSUNG ELECTRONICS CO LTD End-of-day quote.
SAMSUNG ELECTRONICS CO., LTD. 0.45% 1124 Delayed Quote.29.64%
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Financials (KRW)
Sales 2019 231 599 B
EBIT 2019 27 265 B
Net income 2019 21 471 B
Finance 2019 86 330 B
Yield 2019 2,69%
P/E ratio 2019 16,2x
P/E ratio 2020 12,1x
EV / Sales2019 1 511x
EV / Sales2020 1 388x
Capitalization 350 054 B
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 37
Average target price 58 684,68  KRW
Last Close Price 52 800,00  KRW
Spread / Highest target 26,9%
Spread / Average Target 11,1%
Spread / Lowest Target -18,6%
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Hyun-Suk Kim Co-President, Co-CEO & Director
Dongjin Koh Co-President, Co-CEO & Director
Kinam Kim President, Co-CEO & Director
Tae Moon Roh Co-President & Head-Research & Development
Sang-Hoon Lee Chairman
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