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Samsung Electronics, the world’s second-largest chipmaker, is to spend $33bn over the next seven years on new production lines and a research centre to meet growing demand for semiconductors.
The investment plan to boost production capacity for semiconductors, which make up the lion’s share of Samsung’s profit, comes as the technology giant’s other businesses, such as flat-panel and handset manufacturing, suffer from sliding prices.
With the investment announced on Thursday, Samsung plans to build eight fabrication lines and one research and development line, as the company expects semiconductor revenue to almost quadruple to $61bn in 2012 from $16.28bn last year.
The new lines will be added to Samsung’s existing semiconductor plant in Hwasung, south of Seoul. Out of eight new lines, four will be designed to produce 300mm or larger wafer units. The new R&D line will come on stream in May 2006.
“By successfully executing on leading-edge R&D and manufacturing technologies, we are driving the adoption of innovative semiconductor technology solutions in the marketplace,” said Hwang Chang-gyu, president of Samsung’s semiconductor business.
The South Korean chipmaker is betting that the new investments will help it extend its lead over rivals in the capital-intensive industry. “Samsung’s timely investments are based on careful analysis and market sensing, enabling the company to meet new demand ahead of the competition,” the company said.
The seven-year spending plan, which starts next year, averages $4.7bn a year. The company has earmarked $5.8bn this year for semiconductor investment. In addition to building new fabrication lines, Samsung is considering entering the foundry business and building a second US chip-making plant.
Analysts expect Samsung to maintain its aggressive investment strategy for the semiconductor business to stay ahead of the pack in the competitive market.
“There is no other business delivering more profits for Samsung than its semiconductor operations. The chip business is holding up well, while its handset and LCD businesses are suffering from falling prices and profitability,” said Jae Lee, an analyst at Daiwa Securities.
Profits at Samsung tumbled 46 per cent in the second quarter, dragged down by falling prices of handsets and flat-panel displays. Its semiconductor operations posted an operating profit of Won1,100bn ($1.1bn), accounting for almost 70 per cent of its overall operating profit.
Yoon Jong-yong, Samsung’s chief executive, has forecast that tough business conditions across all divisions could cut the company’s total profits by as much as a fifth this year.
But analysts expect semiconductor earnings to improve in the second half, as demand for Nand flash-memory chips, used in digital cameras and MP3 players, keeps rising while D-Ram prices stabilise.
“The market outlook is not bad. Samsung will post bigger earnings in the fourth quarter than in the current quarter, as the Nand market keeps growing while profitability of the D-Ram business improves,” said Mr Lee.
Mr Hwang has forecast the company will post record chip sales in the second half of this year.