TAIPEI — Samsung, which has nearly half of the global DRAM market, is likely to crush smaller rivals after more than doubling its plan for capital expenditures in its semiconductor unit for this year, according to market analyst IC Insights.
The world’s biggest chipmaker will boost 2017 capex from the $11.3 billion it spent last year to an unprecedented $26 billion.
Buoyed by strong prices for memory chips, Samsung said it sailed to a record quarterly operating income of 14.5 trillion won ($12.8 billion) in October. The outlook continues to be bullish as DRAM prices are expected to increase about 10 percent in the fourth quarter largely due to strong demand in the mobile DRAM market.
In the meantime, consolidation in the DRAM business has left three companies – Samsung, SK Hynix and Micron – with a combined 95 percent share of the world market. China, which buys about a fifth of the global DRAM supply, has funded the creation of domestic memory producers such as XMC to reduce dependence on imports and get a leg up in the semiconductor industry. China’s plan may be dashed.
“Samsung’s current spending spree is expected to just about kill any hopes that Chinese companies may have of becoming significant players in the 3D NAND flash or DRAM markets,” IC Insights said in a Nov. 15 report. “This year’s level of spending by Samsung just about guarantees that without some type of joint venture with a large existing memory suppler, new Chinese memory startups stand little chance of competing on the same level as today’s leading suppliers.”
IC Insights’ latest forecast now shows semiconductor industry capital spending climbing 35 percent this year to $90.8 billion. Samsung’s capex for 2017 is likely to be more than this year’s outlays from Intel and Taiwan Semiconductor Manufacturing Co. (TSMC) combined, according to the market researcher. Samsung, Intel and TSMC are the largest spenders on semiconductor capex.
Samsung’s semiconductor spending of $8.6 billion in the fourth quarter of this year will account for 33 percent of the $26.2 billion industry total during the period, according to IC Insights. Meanwhile, the company is expected to bring in about 16 percent of worldwide semiconductor sales in the fourth quarter this year, the market research firm said.
Samsung’s $26 billion in semiconductor outlays this year will be allocated as follows, according to IC Insights.
- 3D NAND flash: $14 billion, including a huge ramp in capacity at its Pyeongtaek fab.
- DRAM: $7 billion for process migration and additional capacity to make up for capacity loss due to migration.
- Foundry/Other: $5 billion for ramping up 10nm process capacity.
Samsung’s massive spending outlays this year will have repercussions far into the future, according to IC Insights. One of the effects likely to occur is a supply glut in the 3D NAND flash market. This overcapacity situation will not only be due to Samsung’s huge spending for 3D NAND flash, but also to its competitors such as SK Hynix, Micron, Toshiba and Intel in response to Samsung’s spending surge. At some point, Samsung’s competitors will need to ramp up their capacity or lose market share, IC Insights said.
—Alan Patterson covers the semiconductor industry for EE Times. He is based in Taiwan.