Samsung Reaches Crossroads

Samsung Electronics’ recent situation is not very peaceful. A few days ago, a news network said that Samsung will be the Chinese market 11 branches and offices into five, the number of layoffs reached a third, the division of the main sales and marketing. On October 31, Samsung Electronics officially announced its third-quarter results for the year ended September 30, 2019. Samsung Electronics Q3 operating profit reached 7.8 trillion won ($6.7 billion), down 56% year-on-year, hit by a “waist cut”, Samsung Electronics operating profit fell for four consecutive quarters.

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Samsung Electronics’ three core pillar industries are in decline, profits are falling, relying on the advantages of the industry to suffer from the squeeze, its major impact on chip manufacturing, mobile phone mobile business and so on have also suffered a series of major setbacks, Samsung Electronics seems to be suffering from a “Waterloo”-style collapse.

Folding at a proud chip

Chips, which have contributed most of Samsung Electronics’ revenue spending and are a major source of net profit for Samsung Electronics, have been at the forefront of Samsung Electronics’ revenue decline. This is the core source of Samsung Electronics’ current woes, and in terms of short-term impact, the current decline in Samsung’s electronic chip business is mainly due to the industry downturn caused by the industry cycle shift.

Samsung Electronics’ profit decline in the third quarter was mainly due to continued weakness in the memory chip market, and the continued decline in memory chip prices led to a sharp year-on-year decline in memory business profits, down 77.7 percent year-on-year.

The semiconductor industry has long been subject to the “Moore’s Law”, the semiconductor cycle from order increase to price rise, from price increase to order decline, from order decline to lower prices, and finally from the decline in prices to order increase, this cycle formed four stages of recovery, expansion, peak and recession.

The current cycle has benefited from large-scale applications of mobile smart terminal phones, which have led to a surge in sales of memory chips, creating a wave of dividends that have led to higher prices for memory chips and a drop in orders. The market is back in a new slump, starting in 2019.

For much of 2017 and 2018, Samsung’s quarterly profits hit record highs as global demand for chips soared. Last year, more than 75% of Samsung’s profits came from the chip business.

However, an oversupply of semiconductors has dragged down prices and brought to an end Samsung’s record profits. The cyclical decline of semiconductors around the world in 2019 is a direct cause of Samsung’s oversupply. As a result of the global economic downturn, the auto industry, the automotive industry, which is in high demand for semiconductors, has slowed or even stopped growing, reflecting that the supply side is oversupply and prices are falling.

The semiconductor industry suffered its biggest recession in a decade in 2019, with output estimated to be down about 13% a year, with the memory market and panel industry most notable.

The global memory market is oversupplied in 2019, with quarterly prices bottoming out on the supply side under the pressure of high inventories, with an average annual decline of nearly 50%. And Samsung Electronics, one of the pillar industry panel industry, by the impact of weak demand, the panel industry is also experiencing a wave of low tide.

The semiconductor storage industry as another major advantage of Samsung Electronics industry, affected by the price cycle, Samsung Electronics revenue this year repeatedly broke new lows, DRAM and NAND Flash prices plummeted so that Samsung Electronics brilliant, as one of The three major South Korean enterprises, Samsung this year in their own advantage industry has been down in the sand.

Samsung’s chip manufacturing is its core revenue business and plays an important role in the entire Samsung Electronics. At a time of boom in the chip industry, chips are Samsung Electronics’s “pool” and “cash cow”, but the current deep industry downturn, external risks, the decline in chip prices caused by the decline in profits is bound to make the financial results difficult.

In addition, Samsung Electronics targeted the introduction of low-end mobile phones, but also directly lower edgout of its mobile phone sales profits. These are just some of the problems Samsung Electronics faced in the third quarter, and the four consecutive quarters of declines are more evidence of the deeper impact on its business. For now, the impact is largely caused by trade disputes and a slump in core markets.

Trade friction, market downturn “to make matters worse”

The impact of global macroeconomic uncertainty is even greater than those of the obvious market. Problems caused by global trade frictions this year have also continued to fester in East Asia, with trade frictions between South Korea and Japan hitting Samsung’s chip making.

After the Japanese-South Korea trade friction occurred, the chip material selling directly for the production was cut off by The Japanese, which is relying on the chip production and sales of Samsung is undoubtedly a squeeze strike.

Semiconductor has always been an important business for Samsung, but the current stability of the industrial chain is insufficient, thus affecting the semiconductor business. The photosensitive “photoresist” and hydrogen fluoride are subject to extremely stringent restrictions, and these three materials are the key materials used to make semiconductors. The immediate reality is that if the three raw materials are not available, South Korean companies can only hold on to their inventories for up to three to six months, when they run out of stock and factories are forced to shut down.

Manufacturing in semiconductors such as high-end chips, memory, flash memory and storage is a key business for Samsung, but key materials are now clamped down by Japan and squeezed by competitors as production is limited.

At present, the chip manufacturing industry’s main competitors, TSMC, magnesium light, Helix and other rivals are desperate to seize the market share of Samsung Electronics, the current situation for Samsung Electronics can be described as dangerous anomalies.

Samsung Electronics has also been left behind by its old rival TSMC in its semiconductor foundry business. In this year’s semiconductor industry downturn in the environment, TSMC by virtue of the 7nm technology advantages, still receive a single hand soft.

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According to previous media reports, TSMC’s current 7nm capacity is already full, resulting in a significant extension of the delivery period for new customer orders, from the original two months to the current six months. At present, only TSMC and Samsung Electronics are available on the market for 7nm capacity, but Samsung Electronics has a lot of negative information about the 7nm process, and seems to be further away from large-scale shipments.

In addition, the decline in mobile and IT businesses is related to Samsung Electronics’ loss in the world’s major consumer markets.

First, it is the collapse of the Chinese market. Samsung is one of the first mobile phone manufacturers to enter the Chinese market, its peak once occupied the Chinese market more than 20% of the market share, and with the rise of domestic mobile phones, HuamiOV from products to marketing and channels have come to Samsung in all aspects, the main high-priced and less cost-effective Samsung gradually declined.

Even worse is the battery “explosion door” incident, so that its position in the eyes of consumers plummeted. Samsung phones have become a “ban” in many countries, banning the Note 7 from flying. Samsung’s share of China’s smartphone market has fallen to 0.7 per cent and has become a fringe brand.

The loss of the Chinese market has had a big impact on Samsung’s mobile business. But more importantly, without action, Samsung’s other overseas markets will also be replaced by Chinese manufacturers. Huawei’s shipments were approaching Samsung in the third quarter, and Huawei has yet to enter the North American market, where consumers are keen.

In the third quarter of 2019, the top five handset makers were Samsung, Huawei, Apple, Xiaomi and OPPO, according to a new report from Market Research. But in terms of growth, Huawei’s shipments rose 29 per cent year-on-year, up from 11 per cent for Samsung, continuing to lead other smartphone companies and narrowing the gap with Samsung. While Samsung’s position as the world’s largest market is still there, it is close to being overtaken by Huawei.

Samsung’s mobile phone business relies heavily on overseas markets such as North America and Europe. But in recent years, overseas markets have been challenged by local handset brands.

In recent years, China’s Huawei, Xiaomi, OPPP, vivo, one plus and other mobile phone brands rapidly rise, gradually occupied the mid-range mobile phone market, and these brands of mobile phone products, excellent quality, functional, cost-effective very prominent, samsung and Apple as the representative of the high-end mobile phone market share has posed a threat, And directly reflected in the actual revenue data.

First, China’s top three handset makers have taken a 32% market share in the global market from the third quarter of last year to 37.3 percent in the third quarter of this year.

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The gradual loss of these core markets, which has left their mobile phones and IT businesses facing new difficulties, has further exacerbated their internal crises. And behind the big crisis, the new 5G technology, has become the current use of the key to corner overtaking, in this aspect of the layout, Samsung is a no-go effort.

5G good and non-memory new business into a “life-saving straw”?

As the core area of many communications and electronics business giants, 5G business is also an important field for Samsung to seize the commanding heights of the industry in the future, and is the core area of Samsung’s concern around 5G chips, system semiconductors and the Internet of Things of Smart Terminals.

The consumer electronics industry’s transition to 5G has become a glimmer of hope for the technology industry, which will not only stimulate demand for smart machines, but also boost the advanced memory chip sector. These chips can handle a vast amount of information in a range of connected devices, from cars to robots.

Samsung is currently launching five 5G smartphones worldwide, including the A-Series and the Fold series, including the Galaxy Note 10 5G version, which is popular overseas. With the acceleration of 5G commercial, a new wave of “change of machine” to provide 5G smart machines with new smart chips, can boost the current weak internal memory chip business, but also to drive the growth of mobile business, so 5G is seen by Samsung as the most critical strategy to speed up the layout.

In addition to the introduction of 5G smartphones, driving up demand for its memory chips, Samsung has also strengthened its business presence in the non-memory sector. Samsung has taken a series of steps over the past five months to accelerate the growth of its non-memory business, with the aim of expanding its 5G footprint as quickly as possible while finding new growth points.

Samsung has taken a series of steps over the past five months to accelerate the growth of its non-memory business. These include the development of 3 nm processes in the field of wafer foundry, investment in the development of neural processing units (NPus), and enhanced cooperation programs with AMD in the GPU. In addition, Samsung recently released the industry’s first action image sensor that can reduce the image to 0.7 m (micron).

In fact, the global system semiconductor market is estimated at $321.20 billion in 2019, double the $162.25 billion in memory markets. Samsung, on the other hand, expects to increase its market share in the system semiconductor market to reduce its reliance on the storage unit business. Samsung’s memory business now accounts for 70% of its semiconductor sales.

[评论]核心支柱动摇利润大减 三星走到十字路口

According to South Korean market participants, Samsung’s system semiconductor development strategy is mainly focused on upgrading the Internet of Things (IoT) mobile application processors (ApS) and memory, including cars, with the advantage of samsung’s current second chair for the wafer foundry industry, after the relevant integration. It is expected to reach the leading position in the industry by 2030.

In addition, Samsung plans to use NPU on its mobile processors and increase the number of experts and researchers involved in deep learning tenfold to develop and improve the processing speed of artificial intelligence, which will be part of a major tool Samsung can use to compete with Huawei in the smart phone market.

However, with China’s 5G opened, matching a series of smart machines will also be available, samsung in the Chinese market will also be in other parts of the world to meet China’s Huami OV and other mobile phone manufacturers, whether to reverse the situation in other markets, it remains to be seen.

Another serious problem is the stalled trade dispute between Japan and South Korea, and the supply problems created by Samsung’s chipmaking are still rather thorny issues.

Japan and South Korea trade friction, directly lead to the key chip production materials are cut off, which directly affects the future chip production supply problems. The current Japan-South Korea trade negotiations, still deadlocked, and for Samsung Electronics semiconductor supply has a huge impact on the three key chemical materials in the short term can not find a replacement, will inevitably continue to affect its generation and supply problems for some time to come.

The chip is made with a neck stuck, which will have a knock-on effect on “Samsung”, which relies on the chip for its livelihood. If that doesn’t improve in the future, it remains to be seen whether Samsung’s 5G strategy will land, and whether 5G will be its life-saving straw will also depend on when chip making can resume supply or find a suitable alternative.

In short, standing at the 5G digital intersection, Samsung is facing new opportunities, but also need to meet new challenges, the future can continue to lead the trend, but also to observe its follow-up action.

Wen, Snake Eye Finance Reporter/Liu Lei, Public ID: Sheyancaijing

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