Will Samsung Dash Hoping for China’s Storage Market?

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Is Samsung’s massive $ 26 billion semiconductor investment just delaying China’s foray into the storage device market? While China’s inevitable entry into the DRAM and NAND flash markets is unlikely to stop despite technological challenges, it can have a greater impact on its competitors’ investment plans as Samsung protects its leadership position. For buyers, this could mean lower prices for 3D NAND as the industry enters a phase of oversupply.

While China has the capital to invest in manufacturing capacity, industry observers say there is no way to make technological advances in the storage market without a joint venture or partnership.

IC Insights was skeptical of Chinese startups that were able to compete with storage device leaders – Samsung, SK Hynix, and Micron – even before Samsung announced its investment plans.

“The Chinese can afford a lot of capacity, but I don’t see them competing with the big technology suppliers in the next five to ten years,” said Bill McLean, president of IC Insights.

Samsung’s capital spending will “stop all hopes Chinese companies may have of becoming major players in the 3D NAND flash or DRAM market” and “almost guarantee that without any sort of joint venture with a large one in existence.” Memory Suppler “New Chinese memory startups have little chance of competing on the same level as today’s leaders,” said McLean.

“Even before Samsung’s investment spike this year, we believed that without a joint venture agreement with a major memory provider, there was little chance that China’s memory providers would compete for technology,” he added.

“You just have to look at a company like SMIC, China’s largest indigenous foundry,” McLean told EPSNews. “You have been in business for about 15 years and are just starting to manufacture 28nm devices. They are currently about five generations behind TSMC in technology. If after 15 years in business, SMIC cannot compete with foundry leaders on technology, then why would anyone think it would be any different for memory? “

“Even if they developed advanced technology themselves, the new Chinese suppliers would almost certainly infringe numerous DRAM and NAND patents owned by Samsung, SK Hynix, Micron, etc.,” said McLean.

Avril Wu, Research Director of DRAMeXchange, cannot say that it is “totally impossible” for Chinese startups in the storage market to compete at the same level as the big players, “but it will be considerably difficult and time consuming for smaller companies without it Help starting from scratch (especially with regards to DRAM design). “

Wu noted that “Chinese startups have made some strides in 3D NAND development, but there isn’t much about DRAM yet. Regarding the project design of DRAM and NAND, DRAM has by far a higher barrier to entry. Without a joint venture or partnership, it is therefore difficult for these parties to (legally) switch to DRAM. “

DRAMeXchange believes that Samsung’s capacity expansion and technology migration will help the company maintain its technology lead over the competition for a year or two while preventing Chinese DRAM and NAND flash makers from catching up significantly .

“Right now, Samsung is apparently more concerned about potential NAND competition from China than about DRAM (since there is little competition for DRAM from China yet),” said Wu. “We believe that Samsung is more interested in strengthening its technical leadership position in the world market.”

Wu previously indicated that China’s storage industry is expected to enter the development phase in 2018. “To prevent Chinese DRAM and NAND flash manufacturers from catching up significantly, Samsung could increase its manufacturing capacity for these products and set aggressive prices. Potential market participants will not be able to expand their production capacities and improve their technologies on time if they are under severe financial pressure. “

However, China’s domestic IC production plans are unlikely to be halted, especially for storage devices and processors.

“Developments in China’s IC industry are being driven by demand for import substitutions, government policies, major funding sources and innovative applications for semiconductor technologies,” said Jeter Teo, research director of TrendForce, in a statement. “At present, important products in the Chinese IC market, such as processors and memory components, are still being imported from overseas. In fact, from 2012 to 2016, China imported IC products worth more than 1.4 trillion RMB annually for four consecutive years. Therefore, increasing domestic IC production has become a critical task for the Chinese government. “

Delivery and pricing

IC Insights recently revised its semiconductor industry investment outlook. The market researcher assumes that spending in 2017 will increase by 35 percent to 90.8 billion US dollars. The big donor is Samsung. The electronics giant spent $ 11.3 billion on semiconductor investments last year, and this year the semiconductor company expects to double its spending to $ 26 billion.

“In my 37 years following the semiconductor industry, I have never seen such an aggressive surge in semiconductor investments. The sheer scale of Samsung’s spending this year is unprecedented in the history of the semiconductor industry, ”said McLean.

IC Insights estimates that Samsung’s $ 8.6 billion semiconductor investments accounted for 33 percent of total semiconductor industry investments of $ 26.2 billion in the fourth quarter of 2017 and approximately 16 percent of global semiconductor sales in the fourth quarter will make out.

Here are IC Insights’ estimates for Samsung’s capital investment:

  • 3D NAND flash: $ 14 billion (including a huge capacity ramp at the Pyeongtaek factory)
  • DRAM: $ 7 billion (for process migration and additional capacity to make up for lost capacity due to migration)
  • Foundry / Other: $ 5 billion (to expand 10nm process capacity)

Regarding the importance of Samsung’s investments to the industry, IC Insights believes it could lead to a period of overcapacity in the 3D NAND Flash market. But it’s not just related to Samsung’s spending. IC Insights believes that competitors like SK Hynix, Micron, Toshiba and Intel will eventually increase their spending in order to maintain market share.

Competitors who increase their investments in order to maintain market share are more likely to enter a “perfectly competitive market” than an oligopoly. We therefore believe that this is more likely in NAND competition, but not in DRAM, ”said Wu of DRAMeXchange.

“It is difficult to predict how far Samsung will be in future DRAM and NAND markets if we don’t know the detailed plan for their capital expenditures,” said Wu. “As far as we know, most of the capital expenditures currently go into developing 3D NAND, which is the top concern for suppliers. As soon as 3D NAND is available to all suppliers, ASP will likely fall. However, NAND products have a high price elasticity of demand, so that lower prices lead to higher demand in the short term. “

For DRAM, the company’s performance will increase by 80,000 to 100,000 wafers for 2018, according to Wu, if Samsung continues to expand capacity. This means that Samsung’s total DRAM production capacity would increase from 390,000 wafers per month at the end of 2017 to nearly 500,000 wafers per month by the end of 2018. This will increase the annual growth rate of Samsung’s bit offering from an original 23 percent to 23 percent in 2018, a forecast of 18 percent.

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