Samsung prepares for China attacks on semiconductor

By Kim Yoo-chul, May. 12, 2016 – 

The world's biggest memory chip producer is "closely monitoring" Chinese companies' rapid output expansion, a senior Samsung executive said Thursday. But the company is not worrying too much about the "China factor."

"Samsung did an excellent job in manufacturing smartphones and semiconductor chips," Samsung SDS CEO Chung Yoo-sung told reporters on the sidelines of an industry forum at the Chosun Hotel in downtown Seoul. "But China's semiconductor industry is heavily backed by China's central government."

Chung did not elaborate. But the remarks come after Chinese companies are challenging Samsung Electronics' decades-long leadership in the memory chip segment.

China's ambition in the semiconductor market is no secret. With an appetite for $150 billion to $170 billion of semiconductors a year, the nation accounts for more than 50 percent of the world's total semiconductor consumption, according Bernstein Research, a leading market research firm.

Market analysts and officials say that makes China the world's largest semiconductor market, giving it more bargaining power in the industry.

Beijing established the China IC Industry Fund (CICF) as the main vehicle of its expansion policy push. The fund has some $21 billion but is designed to trigger as much as tenfold more investment from provinces, cities and private companies to inject a total of about $155 billion over the next five years.

Samsung Electronics is diversifying its chip portfolio by expanding in non-volatile and more-profitable logic chips ― a segment in which China is relatively weak.

"Despite growing challenges, I think the outlook for Korea's semiconductor industry is looking bright," Lee Yoon-woo, a former Samsung Electronics vice chairman, said during the forum.

An executive, who asked not to be identified, said Samsung Electronics is concerned about China's growing "shopping spree" to acquire technology and assets abroad to accelerate its expansion in the market.

"I've thought whether or not Korea has a future in semiconductors," the executive said. "Some say the semiconductor industry will follow similar suits seen in the shipbuilding industry, which has been falling. However, this expectation has gone too far."

Some argue that market statistics analyzing China's expansion may be misleading, because they include the consumption of foreign companies that have operations in China. These operations are often for manufacturing, while system design and component selection are done in other countries, Bernstein Research said.

Kim Ki-nam, president of Samsung's semiconductor business division, spoke about the future of Korea's semiconductor business during the forum. LG Chem President Lee Woong-beom and former telecom ministry minister Chin Dae-je also attended the event.

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