Samsung to Invest $7 Billion in China Fab

Article By : Alan Patterson

Samsung will invest $7 billion over a three-year period to ramp up a Chinese fab to expand production of NAND flash memory that's in strong demand for smartphones and other mobile devices.

TAIPEI — Samsung will invest $7 billion over a three-year period to ramp up a Chinese fab to expand production of NAND flash memory that’s in strong demand for smartphones and other mobile devices.

The investment is for a new fab in Xi’an that would be the second chip facility at the northern China site. On Monday (Aug. 28), Samsung approved $2.3 billion of the expected investment of $7 billion, according to reports by Reuters and Bloomberg that said the South Korea-based chipmaker was their news source.

The company has been investing aggressively as industry-wide capital spending is expected to soar by 20 percent in 2017, largely driven by Samsung, according to market watcher IC Insights. The key driver behind strong growth this year has been the memory chip segment.

Samsung’s full-year 2017 capital expenditures could range from $15 billion to $22 billion. If Samsung spends $22 billion this year, total semiconductor industry capex could reach $85.4 billion, representing a 27 percent increase over the $67.3 billion the industry spent in 2016, IC Insights said.

China is expected to become the world’s second-largest market for chip equipment by 2018 as a number of startups in the nation are ramping up new fabs.

China will increase overall fab spending, including construction and equipment, by 54 percent annually as the nation’s spending rises from $3.5 billion in 2016 to $5.4 billion in 2017, according to global chip equipment industry association SEMI. By 2018, the figure will jump to $8.6 billion in 2018, according to SEMI.

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A Samsung Electronics spokesman declined to comment on the amount of capacity to be added in the second Xi’an China fab. Samsung built its first fab in Xi’an in 2014, and that facility is in full operation.

The company, which just this year is expected to become the world’s largest chipmaker, snatched 38.3 percent of the global NAND flash memory market revenue during the April-June period this year, according to the news reports, citing market watcher IHS.

In the meantime, China has been trying to build a domestic memory industry to satisfy its huge demand for semiconductors that as of today, the nation has no choice but to import. In the meantime, companies such as Samsung have been investing in expansion of Chinese memory chip production, anticipating growth of the domestic industry.

A memory boom propelled Samsung to record profit in the second quarter this year, and the company has forecast that situation is likely to continue in the current July-to-September quarter.

Samsung’s strength in memory chips has driven the company’s earnings to a record in the most recent quarter, and helped it become more profitable than Apple Inc.

Samsung had about 41 percent of the NAND market in the March quarter, more than double the 18 percent of Toshiba Corp., which developed the technology, according to data compiled by Bloomberg from IDC.

To be sure, Samsung’s outlook isn’t totally rosy. Five top executives of South Korea’s largest conglomerate that accounts for nearly a fifth of the nation’s economy have been sentenced to jail terms of up to five years on charges of bribery involving top-level officials of the South Korean government.

Nearly a decade ago, Samsung and its other competitors in the memory chip business paid a fine of about $1 billion to the U.S. government for price fixing.

—Alan Patterson covers the semiconductor industry for EE Times. He is based in Taiwan.

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