Samsung May Be ‘Uncatchable’ With $15.6 Billion Capex
May 18 (Bloomberg) -- Samsung Electronics Co.’s record 18 trillion won ($15.6 billion) capital spending plan may widen its lead in the memory-chip and flat-screen industries to the extent rivals can’t catch up, investors and analysts said.
Samsung will invest 11 trillion won this year to expand its capacity to manufacture chips, 5 trillion won on liquid-crystal displays and 2 trillion won on televisions and mobile-phones, the Suwon, South Korea-based company said yesterday. Combined with research and development, spending will increase to 26 trillion won, 67 percent more than in 2009.
Samsung, which posted record profit last quarter, may avoid accelerating the typical shortage-to-glut cycles in the chip and LCD industries as competitors can’t afford boosting outlays, analysts at Meritz Securities Co. and NH Investment & Securities Co. said. The investments may push spending in the memory-chip industry to the highest since 2007, a boon for equipment manufacturers such as Applied Materials Inc.
“Who can catch up to Samsung? No one,” said Choi Min Jai, a fund manager at Seoul-based KTB Asset Management Co., which manages about $9.3 billion in assets, including Samsung shares. “If others invest together, then the industry may fall apart but there’s no one able to race with Samsung right now.”
Samsung gained 0.8 percent to 790,000 won at 9:41 a.m. on the Korea Exchange today, compared with the benchmark Kospi index’s 0.1 percent decline.
The company’s investment budget, the largest in the technology industry, exceeds those of Intel Corp., International Business Machines Corp. and Sony Corp. combined.
Have Difficulty
Smaller rivals will have difficulty in keeping up with Samsung, which had about 20 trillion won in cash, equivalents and short-term investments at the end of March, because they are still recovering from the industry’s three-year slump, said Lee Sun Tae, a Seoul-based analyst at Meritz.
The computer-memory chip industry posted losses for 10 consecutive quarters before returning to a profit last year, El Segundo, California-based researcher ISuppli Corp. said this month. The global slump prompted manufacturers to cut production and investment plans, helping ease the industry glut.
“The benefits of the current up-cycle will be distributed unevenly as the gap between first tiers and second tiers has widened, in terms of both capability to add capacity and technology,” Chung Chang Won, an analyst at Nomura Holdings Inc., wrote in a report last month.
DRAM Leader
Samsung had a 32.3 percent share of the global dynamic random access memory market in the first quarter, compared with second-ranked Hynix’s 21.5 percent, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for semiconductors. Japan’s Elpida Memory Inc. had a 17.4 percent share, while Micron Technology Inc. had 14.1 percent.
While investments by memory chipmakers will more than double to $18.8 billion this year, it’s still 41 percent less than that of 2007, according to Merrill Lynch & Co.
“Previously, when Samsung increased its investment others followed, but under current circumstances, they don’t have the potential and may be conservative in their spending plans,” said Seo Won Seok, an analyst at NH Investment.
Global revenue for DRAM, which temporarily holds data and helps computer processors run multiple programs simultaneously, will probably climb 40 percent to $31.9 billion this year, ISuppli said in February.
Samsung’s investment “does raise the specter that the DRAM capex spend battle will escalate and eventually lead to an overcapacity (and oversupply situation),” Patrick Ho, an analyst at Stifel Nicolaus & Co., wrote in a report yesterday.
Flat Screens
Samsung, the world’s largest LCD maker, is also boosting spending on flat screens to meet rising demand. LG Display Co., the second-largest, last month raised its budget by about 38 percent to 5.5 trillion won for 2010.
Global shipments of LCD TVs may rise 24 percent to more than 180 million units in 2010, Austin, Texas-based DisplaySearch said in March.
Analysts predict Samsung’s earnings growth will probably extend until the third quarter and higher memory-chip and flat- panel prices will help the company post record profit in 2010.
“This massive amount of spending during tough times will cement Samsung’s leadership,” said Kim Young Joon, who oversees $932 million of stocks at NH-CA Asset Management in Seoul as head of equity investment. “The investments could pressure competitors to follow suit, which could be a burden for smaller rivals that aren’t as financially strong as Samsung.” bloomberg.com |
