The Trials and Challenges Samsung has Faced Now

Source:   Editor: admin Update Time :2019-08-10

Samsung is not the lucky one who has succeeded overnight. Before having developed the world-class quality, design and innovative ability, Samsung had undergone the hardship and torment on the way to be such a leading company.

On July 5th, according to the second-quarter earnings report released by Samsung Electronics, the total revenues has reached KRW56 trillion with KRW6.5 trillion profits, which has declined by56.29% compared with same period of last year. Combined with the previous quarter, the revenue of Samsung Electronics in the first half of year has reached KRW 12 trillion equal to KRW 730 billion, which has reduced by 58.28% and more than half compared with same period of last year.

Besides, for the semiconductor sector, according to the analysis of South Korean securities industry, the profits of semiconductor sector in the second quarter of last year has reached KRW 11.6 trillion. But, the profits of this quarter has only reached KRW 3 trillion, which has fell by more than 70%.

The success and failure of Samsung Electronics attribute to memory.

“It is easier to ascend a throne than to keep it.”So does Samsung.
The market shares of Samsung, SK Hynix and Micron in DRAM industry have accounted for over 90%. Among them, the market share of Samsung and SK Hynix of DRAM industry has reached more than 70%. Besides, Samsung has been performing well in the memory market.
As the prices of memory and flash memory has significantly increased in 2017 and 2018, Samsung has gained great profits, thus topping the list of global semiconductor manufacturers in terms of revenue and winning the game.
However, the international trade deputes has been intensified recently. The demand of semiconductor for companies has declined and the memory products are oversupplied, thus leading to the prices of memory and flash memory were collapsed, the price of memory products has consistently declined and the revenues of Samsung has significantly fell.

The reasons why the memory revenues of Samsung have significant declined are as follows:
At first, PC and smart phone manufacturers give Samsung semiconductor more opportunities for development and Samsung also brings the profits to them. Once PC and smart phone industries get into trouble, Samsung’s revenues also will decline. Among them, Huawei, the biggest customer of Samsung, owing to the bad overseas sales, the number of memory chips Samsung provides for Huawei has declined. What’s worse, the oversupplied chip has resulted in the low-price of chips, thus making Samsung’s business tougher. Secondly, Samsung is forced to low the price to keep advantages and monopoly position due to the emergence of Chinese memory particles industry. Thirdly, as going to enter the new era of DDR5 and UFS3.0, the majority of consumers and manufacturers are sitting on the fence and their purchasing demands are not so desirable. Therefore, Samsung plans to control the production and sweeps the inventory leading to profit declines.


The profits of chip business for Samsung has accounted for over two thirds. But, nowadays, the saturated smart phone market and weak demand of memory products have lowered chips’ prices. So far, the momentum of rapid decline in DRAM price has never changed. In addition, the price in the second quarter has fell by 30% and the price in the third quarter is expected to decline by 20 % and the fourth quarter will drop by 10%. Owing to the high inventory, price reduction and sales are the strategies that South Korean manufacturers must adopt, which in turn affects the performance of South Korean manufacturers.

Some people predicted that the inventory of DRAM and NAND memory chips will continue to oversupply, which would delay the recovery of this industry to the second half of 2020. The profits Samsung gained in the second half of 2019 is the worst for the past three years. Under the sluggish market, the oversupply situation has not improved and Samsung’s profit recovery may have to wait for several seasons.

However, some related people point out that the demand of memory market is increasing. The North America server market, consumption electronics and PC products, which have been stagnant for several months, are likely to have large-scale inventory requirements. So the memory market in the second half of year is likely to grow up.

No sooner do we get out of one trouble than down comes another
The relationship between Japan and South Korean has become worse and worse, because of comfort woman, expropriation of workers and other historic hatred between Japan and South Korea since World War II and the new conflict that South Korean imposed import restrictions on Japan’s Fukushima nuclear disaster food.
Shinzo Abe, Japanese Prime Minister, may also be inspired by US President Trump who simply implement economic punishment or retaliation by cracking down on competitors' core products when facing diplomatic and political controversy.

Japan and South Korea have reached an impasse due to the issue of workers' compensation in World War II. The Japanese Ministry of Economy, Trade and Industry announced on the first day of July that it would strengthen controls on raw materials exported to South Korea's semiconductors on the 4th. According to reports, the Japanese limited semiconductor materials exported to Korea are mainly high-purity hydrogen fluoride, resist, and fluorine polyimide. They are important raw materials for smart phones, chips and other industries. South Korean companies rely on 43.9%, 91.9% and 93.7% respectively of these three types materials imported from Japan.

Throughout the history of the Japanese semiconductor industry, the emergence of Japan has been taken care of by the United States. But, after the emergence of Japan, with the strengthening of its own strength, Japan has trapped in several scientific and technological wars with the United States. Based on Japan’s experience of “sailing dangerously close to the wind”, the United States began to support the Korean semiconductor industry and let South Korea won a lot of high-tech industries and products in Japan in terms of tariffs and policy care.

Since 2000, the United States became the world's Internet center and once again brilliant, Japan can only do business outside the Internet domain US dominant. South Korea achieves an economic miracle of self-development relying on the supports of the United States.
Japan chose to move upstream of supply chain in the rising light of South Korea. Today's Korean technology industry relies heavily on Japan and even Japan is the invisible giant in the mobile phone industry and technology hardware.
Japan and South Korea, the pair of contradictory old and new rivals, eventually moved to a new countertop for the trade war.

Japan’s export restriction on materials to South Korea will affect South Korean pillar industries of semiconductor and panel. The Japanese government requires a three-month review permit, but usually South Korean manufacturers may only have one to two months of raw material inventory, which can only support up to four months, and the semiconductor production line will be shut down.

However, the Japanese semiconductor industry is declining. Japanese companies producing semiconductor materials and components rely mainly on exports to Korea to maintain operations. At this time, restricting exports to Korea is likely to result in over-capacity and over-investment in Japanese companies. If South Korea conducts counter-measures and restricts the export of Japanese parts and components, Japan's related industries will face tremendous pressure.

But the damage is not confined to Japan and South Korea. According to Korean experts, South Korean companies are not only consumers of semiconductor materials in Japan, but also core suppliers of memory chips and display panels around the world.

Nihon Keizai Shimbun also commented that in recent, the number of sanctions and anti-sanction measures in the global trade has been increasing, posing a serious threat to the world economic outlook. There is no real winner in this chain reaction of blows and counterattacks.

At present, the dispute between South Korea and Japan has not yet settled. The Japanese sanctions will have a great impact on South Korea's storage chip industry, leading to new challenges for the memory business of brands such as Samsung Electronics. It will also be a disaster for the global NAND flash memory market.

It is a new round of tremendous impact on Samsung, which has not yet stepped out of the gloom of falling memory prices, the slump in the mobile phone market and the sharp decline in profits.

According to foreign media reports, the actual decision-maker of Samsung Group, Lee Jae Yong, went abroad to Japan and will meet with the heads of Japanese materials manufacturers who have business dealings to discuss countermeasures. They may ask Japanese trading companies to ship to factories outside Japan. The move stems from the fact that semiconductor raw material inventory can only support a few weeks of production tasks and the situation is more serious than expected.

Besides, according to Koreatimes, Samsungandother major Korean companies are working hard to find new sources of supply for key materials for chip manufacturing. On the other hand, the Korea Ministry of Commerce, Trade and Resources decided to invest more in the research and development of semiconductor materials, components and equipment.

However, no matter adopting diversified resources or increasing investment to improve the supply chain system, the current predicament cannot be solved in a short time. Under the continuous influence of the market, whether it is Samsung, SK Hynix, LG, semiconductor, consumer electronics and other fields, the next challenge will be greater. And, Samsung's countermeasures or strategy changes will affect the nerve of the storage industry chain.

Those familiar with the technological development process in Japan and South Korea can see that the trade sanctions were ostensibly caused by a South Korean court ruling ordering Japanese companies to compensate Korean workers for forced labor during world war II. And the deeper reason is the interests of the science and technology industry chain behind the rise of Japan and South Korea.


Can Samsung maintain the leading position?

Samsung is not the lucky one who has succeeded overnight. Before having developed the world-class quality, design and innovative ability, Samsung had undergone the hardship and torment on the way to be such a leading company.

Facing the weak memory and smart phone market and unstable international trade relations today, Samsung urgently seek new business growth under badly profits.

On the one hand, compared with the Samsung Electronics Semiconductor business, other departments have relatively good defense. In particular, the display division posted its first loss in the first quarter. In the second quarter, thanks to increased demand for OLED screens from Chinese smart phone companies, Samsung electronics swung to a profit of 500 billion won in the current quarter, which is one of the main reasons for Samsung's holding on to 6 trillion won.
Compared with the first half of this year, the demands for surface OLED will be significantly increased and operating rates in the second quarter is about 100 percent. Thus, the display division is expected to boost Samsung's earnings in the second half of this year.

On the other hand, it’s Samsung's semiconductor business. Due to the successful mass production of 7nm EUV process and its lower price than TSMC, some orders from Qualcomm, Nvidia, IBM, Infineon and other large chip designers have started to turn to Samsung's 7nm EUV process for chip production.
Samsung, which is responsible for a number of next-generation chip manufacturing tasks, also has the opportunity to make the chip foundry business a new revenue pillar. However, Japan’s export restrictions on South Korea will bring new hidden dangers to Samsung’s increasingly sophisticated OEM business, which will frustrate Samsung’s foundry business.
Faced with the pressure of sharp decline in profits, whether it can hold the throne of the semiconductor industry this year is full of challenges for Samsung.
The war of science and technology between Japan and South Korea is a prelude to a new era. But the confrontation between Japan and South Korea in the technology industry chain is also the epitome of another story that is about to begin in the new era. Samsung is witnessing this era.


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