Samsung to build $15b chip plant as smartphone profits slump
Samsung Electronics has announced plans to spend $15 billion building a chip plant in South Korea. The electronics giant made the announcement as it heads for the roughest quarterly results in years amid fierce competition from the likes of Apple and Xiaomi smartphones.
Construction will get underway early next year with semiconductor manufacturing due to commence in 2017, the company said in a statement. Samsung is hoping to manufacture more complex and sophisticated processors, which will be used in wearable devices, smart cars and smart homes.
The world’s biggest memory-chip maker is investing as its smartphone business struggles to stay competitive. Third-quarter operating profit, due to be released tomorrow, is projected to plunge 47 percent and sales may drop 15 percent in the steepest declines since 2009, according to analyst estimates.
Despite disappointing results, the company’s new plant is expected to cost triple the amount Tesla Motors plans to spend on its battery “gigafactory” in Nevada.
Profit at Samsung’s chip unit was 2.14 trillion won in the third quarter, according to a Bloomberg News survey of analysts. That increase from 2.06 trillion won a year earlier is partly due to Samsung supplying semiconductors for the new Apple phones.
Shares of Samsung rose 0.9 percent to 1,151,000 won in Seoul, paring this year’s decline to 16 percent. SK Hynix Inc. (000660), South Korea’s second-largest chipmaker, slumped 5.1 percent.
Analysts have been cutting their profit estimates for Samsung almost daily, with at least 27 of 42 tracked by Bloomberg reducing their estimates in the past four weeks.
Samsung has brought the release date of its Galaxy Note 4 smartphone forward to the end of September, meaning device sales will aid third-quarter results, however faces stiff competition from Apple, which has seen record sales of its newly released iPhone 6 and iPhone 6 Plus.
Samsung will start global sales of its 5.6-inch Note Edge in the fourth quarter, the company has said. The Edge allows users to read messages, news and stock tickers from an angle by extending the display down the side of the phone.
Starting in the 2010 financial year, Samsung adopted International Financial Reporting Standards for its earnings. That change means comparisons to results before 2009 aren’t on a like-for-like basis.
IMF: Variants Can Still Hurt Manufacturing Recovery
After a year of on-and-off manufacturing in the US, UK, and the eurozone, demand for goods surged early last week. Factories set growth records in April and May, suppliers started to recover, and US crude hit its highest price point since pre-COVID. As vaccination efforts immunise much of the US and UK populations, manufacturers are now able to fully ramp up their supply chains. In fact, GDP growth could approach double-digits by 2022.
Now, the ISM productivity measure has surpassed the 50-point mark that separates industry expansion from contraction. Since U.S. president Biden passed his US$1.9tn stimulus package and the UK purchasing managers index (PMI) increased to 65.6, both sides of the Atlantic are facing a much-welcomed manufacturing recovery.
Lingering Concerns Over COVID
Even as Spain, France, Italy, and Germany race to catch up, and mining companies pushed the FTSE 100 index of list shares to a monthly high of 7,129, some say that UK and US markets still suffer from a lack of confidence in raw material supplies. Yes, the Dow Jones has made up its 19,173-point crash of March 2020, and MSCI’s global stock index is at an all-time high.
Yet manufacturers around the world realise that these wins will be short-lived until pandemic supply chain bottlenecks are solved. If we keep the status quo, consumers will pay the price. In April, inflation in Germany reached 2.4%, and across the EU’s 19 member countries, overall prices have increased at an unusual pace. Some ask: Is this true recovery?
IMF: Current Boom Could Falter
Even as Elon Musk tweeted about chip shortages forcing Tesla to raise its prices, UK mining demand skyrocketed; housing markets lifted; and the pound sterling gained value. The International Monetary Fund (IMF), however, cautioned that manufacturing recovery won’t last long if COVID mutates into forms our vaccinations can’t touch. Kristalina Georgieva, Washington’s IMF director, noted that fewer than 1% of African citizens have been vaccinated: “Worldwide access to vaccines offers the best hope for stopping the coronavirus pandemic, saving lives, and securing a broad-based economic recovery”.
Across the globe, manufacturing companies are keeping a watchful eye on new developments in the spread of COVID. Though US FDA officials don’t think we’ll have to “start at square one” with new vaccines, the March 2021 World Economic Outlook states that “high uncertainty” surrounds the projected 6% global growth. Continued manufacturing success will in large part depend on “the path of the pandemic, the effectiveness of policy support, and the evolution of financial conditions”.
Mathias Cormann, secretary-general of the Organisation for Economic Co-Operation and Development (OECD) concurred—without global immunisation, the estimated economic boom expected by 2025 could go kaput. “We need to...pursue an all-out effort to reach the entire world population”, Australia’s finance minister added. US$50bn to end COVID across the world, they imply, is a small investment to restart our economies.