According to reports, after investors, analysts and employees issued a series of warnings that Samsung is losing technological advantages, Samsung has begun to calm the market over the competitiveness of the chip business.
Samsung, currently the global market leader in memory chips, is also taking steps to close the gap with arch-rival TSMC in chip foundry. In a sign of the company’s importance to the global economy, the US president visited Samsung’s Pyeongtaek chip factory during a visit to South Korea in May.
Analysts, however, pointed out that Qualcomm and Nvidia, two of Samsung’s largest chip foundry customers, were snatched up by TSMC earlier this year. The two customers were disappointed by Samsung’s inability to supply 4nm and 5nm chips steadily. In the first quarter of 2022, TSMC’s share of the global chip foundry market was 54%, more than three times that of Samsung, according to market research firm TrendForce.
Last year, Samsung announced a plan to invest 171 trillion won ($151 billion) by 2030 to develop its chip foundry business. However, according to a report from SK Securities in Seoul, TSMC plans to invest $44 billion this year, while Samsung’s investment is only $12 billion.
In Samsung’s dominant DRAM memory chips, rivals Micron and SK Hynix are rolling out more advanced chips faster. Meanwhile, problems with Samsung’s flagship smartphone, the Galaxy S22, released in February, showed that Samsung is lagging behind Apple in terms of hardware competitiveness. The performance and sales of Samsung’s “Orion 2200″ mobile processor chips released this year were also disappointing.
Investors including hedge fund Petra Capital Management and Dalton Investments have expressed concern about Samsung’s rigid corporate culture under vice chairman and de facto leader Lee Jae-Yong. They argue that Samsung prioritizes rapid growth and cost savings over quality and innovation.
Chan Lee, the managing partner at Petra Capital Management, said: “Designing your own chips requires creativity and engineering, but under Lee’s leadership, Samsung has a stronger risk-averse orientation, with engineers refraining from new innovation attempts. ”
In April, a junior engineer on Samsung’s chip technology development team sent a letter to the company’s leadership, saying Samsung’s R&D staff were under enormous pressure to accomplish “impossible” goals in developing new technologies and products.
At the same time, a sense of “frustration” pervaded the organization. “It looks like the top policymakers can’t get to the root cause of the problem,” he said. “I’ve heard many ‘crisis’ stories, but I think this moment is more dangerous than ever.”
“For chip designers and foundries, culture is the key to success,” Dylan Patel, principal analyst at SemiAnalysis, wrote in a recent research note. “These talented engineers need the right motivation. , direction and leadership.” He attributed Samsung’s problems to a “toxic” culture that led to different business units pointing fingers at each other “in the face of mistakes” for Samsung’s non-memory chip business.
Samsung’s share of the smartphone application processor market has nearly halved since 2019, ranking fourth with a 6.6 percent share last year, according to market research firm Strategy Analytics. That compares to Qualcomm’s 37.7 percent share, MediaTek’s 26.3 percent, and Apple’s 26 percent. “Samsung’s technological edge is disintegrating,” Patel said. “Samsung is slipping in every aspect of technology development, including one area where it used to beat all its competitors: DRAM.”
Samsung reported a lower-than-expected operating profit for the second quarter of 2022 as inflation dampened consumer demand for electronic devices. And Samsung is also taking a hit as rising global raw material prices are weighing on demand after the coronavirus outbreak has driven the tech industry’s wild leaps over the past two years.
But Samsung executives argue that Samsung’s storage business still has a technological edge over its rivals. The company introduced EUV lithography more quickly in the production of memory chips, while Samsung dominates the DRAM market with about 40% share.
Kang Moon-soo, vice president of Samsung’s chip foundry business, said the market’s concerns about the loss of critical customers were “overblown.” He told analysts in April that Samsung’s accumulation of orders over the next five years was equivalent to eight times the revenue of last year’s chip foundry business.
Analysts pointed out that TSMC is advancing mass production of 4-nanometer and 5-nanometer chips at a faster pace, affecting Samsung’s ability to produce enough cutting-edge chips for its most important customers. But Samsung said it now has the ability to steadily advance chip production to “maximize” chip supply. A Samsung executive told analysts on Thursday that the company was “restructuring” its chip design business to enhance its long-term competitiveness.
Earlier last week, Samsung held a ceremony to celebrate the shipment of its first 3-nanometer chips. On the 3nm process, Samsung beat TSMC to bring the next-generation technology to market first. James Lin, an analyst at Dalton Investments, said: “If Samsung can increase the output rate of its latest chips, it still has a chance to re-engage customers. No customer wants to take the risk of relying solely on TSMC as a supplier.”
Samsung also said it was working to foster an “inclusive challenge culture” through “open communication” with employees. And Samsung will continue to discuss the company’s vision and business direction with employees.
Meanwhile, Samsung is currently optimistic that Lee Jae-Yong, the successor to the company’s founder’s family, will be pardoned by South Korean President Yoon Seok-wyeh next month. Lee Jae-Yong was jailed last year for bribing the former president of South Korea to secure his family’s control of Samsung Electronics but was released on parole last year.
Still, his work and business activities remain restricted, hampering his ability to manage the sprawling Samsung consortium. According to past practice, presidential amnesties usually take place before South Korea’s Independence Day in mid-August.
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