Semi-Giant's 96% Plunge: Global Chip Dominance Crumbles
Samsung faced an unprecedented crisis in 2023.
Earlier, Samsung Electronics released its financial report for the first quarter of 2023, showing that the sales for the first quarter were 63 trillion won (approximately 330 billion yuan), a year-on-year decrease of 19%;
Operating profit was 0.6 trillion won (approximately 3.1 billion yuan), a year-on-year decline of 96%, setting the lowest record since the financial crisis in 2009.
The sharp decline in performance and plummeting profits have been described by some media as a "bombshell" in Samsung's finances.
How could a former global semiconductor industry leader, who once dominated with the "counter-cyclical strategy," suddenly collapse and become unable to continue?
The chip winter is tough for Samsung
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The chip industry is a typical cyclical industry.
When consumer demand is strong, due to the need for significant fixed asset investment and raw material procurement in the early stages of chip production, companies along the industry chain often cannot meet demand in a short period, leading to cyclical increases in chip prices.
For example, at the beginning of 2021, under the shortage of chips, chip end products experienced a crazy price increase.
As the leader in the semiconductor industry, Samsung not only made a fortune but also heavily invested in building new production capacity and increasing inventory to meet consumer demand.However, with cyclical upswings, cyclical downturns will inevitably occur.
Starting from last March, in order to curb the high inflation levels within the country, the United States began a series of aggressive interest rate hikes, with major global economies following suit.
This directly led to a slump in the global consumer electronics market, with a decline in consumer demand for electronics, a sudden downturn, and a significant increase in the inventory of consumer chips.
According to Samsung's first-quarter financial report, its storage chip backlog has now exceeded 340 billion.
Even though the price of flash memory chips has dropped by as much as 75%, the meager sales are still a drop in the bucket compared to such a huge inventory.
As the chip industry as a whole experiences a severe winter, Samsung's situation is particularly tough.
The cycle of heaven is fair, and the "counter-cyclical strategy" is no longer effective.
South Korea has a well-known secret weapon for its rise - the "counter-cyclical adjustment strategy."
When prices fall, I increase production; when the market shrinks, I expand the factory.
In the past, Japan's shipbuilding and home appliance industries both succumbed to South Korea's "counter-cyclical strategy."But when Samsung was ready to replicate its past success and apply the "counter-cyclical strategy" to Chinese semiconductor companies, the result was a direct collision with a steel plate.
On the one hand, Chinese memory chips have risen rapidly. The more Samsung struggles, the more it finds its technological moat shallow, and even gradually surpassed.
Now the global chip industry chain is clearly divided. The United States focuses on the underlying design of chips, occupying the core position of the industry chain.
Next is Europe. The Netherlands has the most advanced lithography machines, and Germany controls some of the top components.
Then there is Japan, which has many advantages in chip materials. In the past two years, it has used its raw materials to sanction South Korea.
The Taiwan region of China is also not to be underestimated. It has the world's top chip manufacturing level, with the main company being TSMC.
South Korea is not strong in the upstream and downstream of this industry chain, but they focus on memory chips, which is the only place where they are ahead. This has led to the development of two big companies, Samsung and Hynix.
But now, the memory chip market is being attacked by Chinese companies.
In the past, high-end NAND flash memory could only be produced by a few manufacturers such as Samsung.
So whenever the market was down, Samsung's factory would "coincidentally" encounter "accidents" such as power outages, fires, snow disasters, and floods, leading to production restrictions and price increases.But now, what about that?
For instance, when the United States disassembled Hikvision's solid-state drives, they were astonished to find that they contained storage chips with 236 layers of particles, manufactured by Yangtze Memory Technologies.
As the industry leader, Samsung, has just released 236-layer storage technology.
Samsung then realized that it has been caught up by its Chinese competitors in the field of storage chips, and there is no longer a generational gap in technology between the two.
Therefore, as long as Samsung dares to continue selling at high prices, domestic manufacturers will dare to break the price, and Samsung will no longer be able to "mow leeks".
On the other hand, the current consumer market is shrinking, much more severe than Samsung estimated.
Compared to three years ago, the prices of both DRAM memory and NAND flash memory have fallen by nearly 75%.
The entire industry is experiencing a winter period, and as the industry hegemon with a market share of up to 40%, Samsung will naturally suffer greater losses.
In the past, South Korea liked to use "counter-cyclical adjustment" to defeat its opponents, but facing such a huge downward cycle, that approach is no longer viable.
As a result, Samsung had to state that it would reduce chip production to a "meaningful level" and optimize its production line operations.Even to weather this crisis, Samsung has unusually been making frequent overtures to China, wanting to eat "the grass behind the horse."
Helplessly turning to China for help
In 2019, Samsung made a big splash by moving its factories out of China to Vietnam.
Faced with the huge subsidy of $56.3 billion from the United States, it even promised not to expand high-end chip production in the mainland for 10 years.
But now, with the emergence of Chinese storage companies, Samsung has been hit head-on, and has no choice but to turn to China for help again.
First, Samsung Chairman Lee Jae-yong visited China again after three years to attend the China Development High-Level Forum.
Then, Chinese company Wingtech Technology announced that it had won a large ODM order from Samsung.
In addition, Samsung officially announced that it would build an SDI innovation research and development center in Shanghai, with an initial investment of up to 13.8 billion, and there are also rumors that Samsung mobile phones will return to China.
Samsung's various actions seem to be sending a signal:
"If you can't beat them, join them," gradually turning its attention to China, hoping to expand its share in the Chinese market to get out of the current precarious situation.But when friends come, there is fine wine; when enemies come, there are hunting rifles.
Initially, following in the footsteps of the Americans, Samsung formed an alliance to restrict the export of high-end chips to China, attempting to suppress the development of our country in the high-tech field, and constantly talking about surrounding our technology, only to stumble themselves.
Now that their business is impacted and they are struggling to survive, they are thinking of returning to the Chinese market and asking China for help. Is that still possible?
In conclusion:
From electronic components to smartphones and home appliances, Samsung has always been known for its comprehensive industrial chain advantages and extensive business.
However, the semiconductor business has plummeted, and Samsung's other businesses are also performing poorly:
Affected by the overall environment, the sales of mobile phones and tablets are declining, and the recovery of the consumer electronics market is far from sight;
Semiconductor foundry business has been repeatedly hindered, and the competition with TSMC is increasingly at a disadvantageous position, which has already affected Samsung Mobile's overall profitability;
And the panel industry that Samsung has always been proud of is also catching up with domestic enterprises, and its advantages are continuously weakening.
Perhaps, the plummeting semiconductor business is just the beginning. Under a series of business crises, if Samsung fails to open up the Chinese market for a long time, the future will only become more and more difficult.