Samsung Electronics achieved an all-time sales record of 78 trillion won in the first quarter, but its future is shrouded in uncertainty as supply chain disruptions have increased due to the Ukraine war, China’s COVID-19 lockdowns, and concerns about demand cuts amid global inflation.
The company needs to secure future growth drivers in areas other than memory semiconductors, but has not presented a bold investment plan.
Samsung Electronics announced on April 28 that it racked up 77.78 trillion won in sales and 14.12 trillion won in operating profit on a consolidated basis in the first quarter of this year. Its sales and operating profit increased 18.95 percent and 50.5 percent, respectively, compared to the same period in 2021. Its sales increased 1.6 percent quarter on quarter, breaking record high quarterly sales for three consecutive quarters.
Its operating profit also expanded by about 300 billion won due to the strengthening of the U.S. dollar. Memory semiconductor prices did not drop as steeply as expected, and demand for server memories stayed strong. Despite the controversy over the game optimizing service (GOS) app, the Galaxy S22 enjoyed strong sales, contributing to the company's solid performance.
Yet, questions are raised about the company’s future growth drivers. The biggest concern is its foundry business. Recently, the possibility of some customers leaving Samsung Electronics due to foundry yield issues has raised concerns in the market. A rumor is going around that Qualcomm of the United States chose Taiwan's TSMC as its partner for production of 3-nm application processors (APs), changing its plan to work with Samsung Electronics.
Kang Moon-soo, vice president of Samsung Electronics’ foundry division, sought to calm concerns about the company's foundry business by disclosing its strong order inflow. “Our order balance for the next five years will be about eight times larger than our sales in 2021,” he said at the earnings conference call on April 28. “We are actively promoting our foundry business with the focus on advanced processes, so our order intake will further increase.”
“Contrary to market concerns, the supply shortage will continue as demand from major customers eclipses Samsung Electronics’ production capacities,” Kang said. “We will strike long-term supply deals with our corporate customers.”
Kang added that Samsung’s foundry yield is entering the stabilization stage. “Our 5-nm process has entered a mature yield stage,” he said. “We are maximizing supply to major customers based on a stable yield. Although there was a slight delay, we focused on early stabilization. Thus, we are now on an expected yield improvement curve. As for the 3-nm process, we are seeking to shorten the yield ramp-up period and stabilize supply by strengthening step-by-step development verification. We are preparing to secure new R&D lines in order to expedite process development down the road.”
However, it remains to be seen whether Kang's remarks can calm market concerns. There are still observations that the market share gap between Taiwan’s TSMC, the No. 1 global foundry, and Samsung Electronics will further widen this year. TrendForce predicted that TSMC’s market share will reach 56 percent in 2022, up 3 percentage points from 2021. On the other hand, Samsung Electronics’ market share is expected to slide by 2 percentage points from 18 percent to 16 percent during the same period. TSMC presented a plan to invest up to US$44 billion in facilities this year, while Samsung's annual investment in the foundry sector stands at about 20 trillion won.