Samsung: Global Chip Shortage To Deepen

Samsung Electronics, Inc., the world’s largest memory chip maker, said Wednesday it expects chip shortages to last another two years and pledged $5.2 billion (US$) to expand production.

The announcement at a press conference comes after concerns that an oversupply of “dynamic random access memory” (DRAM) chips caused shares in the company to drop drastically in recent weeks.

Samsung officials said that although U.S. demand for computers has slowed, the need for DRAM chips will increase because of new electronic products such as digital cameras, televisions and video disc players. “The mercurial growth of the Internet market and digital media products will lead to a shortage of DRAMS until the year 2002,” said the president of the company’s semiconductor division, Lee Yoon Woo.

Forecasting Demand for Samsung

Industry insiders had predicted that recent and unexpected hikes in chip prices would convince manufacturers to increase production. Still, there is concern that Samsung’s action will force rivals to follow suit, resulting in oversupply.

Analysts also said the South Korean company was playing to its own interests in forecasting demands for its key product. Some chip-makers are experiencing problems amid predictions that chip demand will fail to meet expectations as the world economy slows. Shares in Intel, the world’s largest semiconductor maker, dropped more than six percent Tuesday.

Larger Wafers

Samsung said its plans call for the construction of three new plants by the end of 2003 in order to keep up with increasing demand in both Korean and overseas markets. Two of the plants will be used to make memory chips and the third for non-memory chips. The company said production will begin soon at its tenth plant near Seoul.

Later this month, the company will begin construction on another plant that will use 12-inch wafers instead of 8-inch ones, which most of the industry uses. The 12-inch wafer standard allows about two and a half more chips per wafer.

The new, larger wafers are supposed to make new electronics cheaper, though many companies have balked because of the costs associated with conversion.

“The shift to 12-inch will not affect the commodity market for lower-end chips as the new production lines will be used for higher-value chips,” said Samsung’s Hwang Chang Gyu.

While Samsung has had success with the low-end cellular phone market, the company has also introduced innovative new products. Last month, Samsung and Virgin Mobile launched what they called the world’s first mobile phone with a built-in MP3 player. The SGH-M100, which costs about $515, has 32 MB of data storage, can hold eight songs and is available in Europe, South Africa and parts of Asia.

Soaring Profits

Based in Seoul, Samsung reported 1999 sales revenues of $22.8 billion. The Financial Times reported the company had a 137 percent increase in net profits during the first half of this year, $2.9 billion. Samsung predicted chip-related sales would reach $13 billion this year and $30 billion by 2005.

Samsung has operations in about 50 countries with 54,000 employees world-wide, according to a company statement. It has three main business units: digital media, semiconductors and information and communication businesses.