Samsung Considers Establishing New European Factory and US Listing After Foundry Spin-Off

D-RAM Sales Decline for Second Consecutive Quarter Amid Crisis

Industry Interest in Two Reports Published by Samsung Securities

"Foundry Spinoff Followed by US Listing... Expansion of European Factory"

Samsung Electronics Semiconductor (DS) Division Hwaseong Campus. (Photo by Samsung Electronics)

[Asia Economy Reporter Moon Chaeseok] As Samsung Electronics struggles with declining sales of its flagship memory semiconductor DRAM for two consecutive quarters, there are calls to diversify its foundry (contract manufacturing) business portfolio in the non-memory semiconductor sector. The securities industry has drawn attention by recommending that Samsung consider expanding local factories in Europe and spinning off the foundry division for a U.S. listing.

According to the semiconductor and financial investment industries on the 12th, two reports published by Samsung Securities on the 8th, titled 'Checking the Bottom through Inventory' and 'Geopolitical Paradigm Shift,' are gaining industry attention. The reports were authored by Yoo Seungmin, Head of Global Investment Team; Hwang Minseong, Head of Samsung Securities Tech Team; and Lee Jongwook, Senior Research Fellow of the Tech Team.

Summarizing the two reports, it is expected to be difficult to avoid scenarios such as macroeconomic deterioration and a decline in DRAM equipment utilization rates. The analysis points out that due to the slowdown in the macroeconomy, consumers' disposable income is decreasing, increasing product inventory burdens, compounded by logistics issues, which could lead to customer order suspensions, sales declines, and lower equipment utilization rates.

The background for this analysis is the sluggish sales of memory semiconductor companies such as Samsung Electronics and SK Hynix. According to market research firm Omdia on the same day, Samsung Electronics' DRAM sales in the first quarter decreased by $9 million (approximately 1.17 billion KRW) from the previous quarter to $10.343 billion (approximately 13.4769 trillion KRW). After recording $11.53 billion (approximately 15.0236 trillion KRW) in the third quarter of last year, sales have declined for two consecutive quarters. The global DRAM price drop was cited as the cause of the poor performance. The fixed transaction price for general-purpose DRAM products fell sharply by 9.5% in October last year and 8.1% in January this year, showing a downward trend.

In addition to overcoming macroeconomic challenges such as the Russia-Ukraine war outbreak and prolonged lockdowns in Chinese cities, the securities industry is demanding significant changes to Samsung's business model. Regardless of Samsung's status as the world's number one with a 42.7% share of DRAM sales, there is an urgent call to accelerate the expansion of a non-memory-centered portfolio.

Lee Jongwook, the senior research fellow who wrote the 'Checking the Bottom through Inventory' report, explained that since the second half of last year, there has been a noticeable difficulty in smooth volume shipments. He suggested that manufacturers might proactively cut orders in the second half of this year to reduce inventory burdens. Mobile sector sluggishness could spread to server inventory adjustments and further to automotive electronics. This could also act as a factor causing suppliers to lower equipment utilization rates.

For these reasons, investors are taking a conservative stance, saying, "If profits look promising in the future, of course, they will sell, and if not, they will still sell." Unless there is a significant increase in China's industrial data demand, Apple iPhone shipments, or PC shipments, it is expected to be difficult to avoid the current poor performance.

The problem with the high-profit non-memory foundry business is that only a few companies can manufacture it, and it is characterized by the ability to purchase parts. According to the senior research fellow, "Making is more difficult than selling." The fact that TSMC has secured exclusive orders from Apple is a painful reality for Samsung Electronics and others. Although Samsung Electronics has raised expectations by being the fastest in the world to establish a mass production system for the 3nm Gate-All-Around (GAA) process, this is also why there are calls to drastically accelerate the pace of business restructuring.

Team leaders Yoo and Hwang emphasized in the 'Geopolitical Paradigm Shift' report that winning the competition to secure extreme ultraviolet (EUV) lithography equipment and expanding and diversifying foundry customers are urgent tasks. Both identified their biggest competitors as the U.S.'s Intel and Taiwan's TSMC. Especially, securing foundry customers is a challenging task.

Regarding the localization strategy for securing foundry customers, they suggested that actively considering establishing foundry factories in the U.S., Europe, and other regions is necessary. According to Samsung Securities' estimates, Samsung Electronics' foundry division's revenue share by customer is concentrated with U.S. Qualcomm (38%) and Samsung LSI (37%). Nvidia accounts for 13%, but Apple and European customers have a small share.

The report stated, "In the case of foundry, contact points with customers are more important, so active localization such as additional establishment of Samsung Electronics' U.S. factories is necessary," and "It is also judged that actively considering establishing foundry factories in Europe is necessary."

There is also an urgent issue regarding securing excellent talent. According to Samsung Securities, TSMC employs about 60,000 people, roughly three times the 20,000 employees in Samsung's foundry division. Narrowing down to the research and development (R&D) field, Samsung Electronics has about 3,000 employees compared to TSMC's 10,000, a gap of more than three times.

To solve this semiconductor talent supply issue, the report emphasized the need to spin off the foundry division to raise future compensation expectations for employees. It is necessary to strengthen their motivation to attract overseas talent and cultivate top-tier engineers. It is time to apply the so-called 'Megiron' emphasized by the late Chairman Lee Kun-hee to the semiconductor division. The core of Megiron is to enhance motivation of top talent through healthy crisis awareness and competition.

The report suggested, "After SK acquired Intel's NAND division, it is attempting a U.S. listing," and "Samsung Electronics should also consider spinning off the foundry division and listing it in the U.S."

This content was produced with the assistance of AI translation services.