Friday, 17 October 2014

Smartphones or Semiconductors? Samsung makes a decision

Tech giant Samsung are a company with two very different things happening at once. On the one hand, their smartphone sales are way down with profits falling by almost 60% but their semiconductor business is very much on the up, so much so they are investing an eye watering $14.7 billion on a new chip plant.

Samsung's latest operating profit is $3.8 billion, which is down a huge 59.7% from last year's quarterly figure. This is not only their 4th straight quarterly drop but also their weakest quarterly drop since Q2 2011.

It is thought this is due to poor sales of their smartphones as they are being squeezed out of the market by Apple at the high end and by cheaper Chinese brands such as Xiaomi and Lenovo at the lower end. They have a lot of excess inventory and are struggling to sell older 3G models as both Europe and China switch to 4G.

Because of this, Samsung are pushing their semiconductor business. As the largest memory chip maker, it makes sense that they should lean on this side of the business as the phone sales drop. To prove their commitment to the chip side of the business, they are investing in a new 790,000m² chip plant in Pyeongtaek, South Korea. Work on the project is due to start next year, aiming to be completed in 2017. CEO and Vice Chairman of Samsung Electronics, Dr. Oh-Hyun Kwon said:

“Our investment into the new fabrication plant will significantly influence the shaping of Samsung’s future semiconductor business.”
Analysts have been forecasting furiously and believe the Samsung will report a stronger operating profit in their semiconductor division than the handset division for the first time in over three years. They also find themselves in the unique position of still being able to make money when their rival's phones sell as they make electronic components for major brands including HTC, Sony and Apple. 

It is unlikely that Samsung will ever withdraw from the smartphone market, in fact they have promised “new smartphone lineups featuring new materials and innovative designs,” but with profits coming from the semiconductor end of the business it makes sense that it should focus its efforts here to reap the rewards.

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