Samsung to invest nearly $15bn on new Korean chip plant

Samsung is investing a new chip production facility in Pyeongtaek to boost its semiconductor business.
Written by Liam Tung, Contributing Writer

Amid a profit slump in smartphones, Samsung has announced it's investing 15.6 trillion won ($14.7bn) in a new chip production plant in South Korea.

Construction of the new semiconductor fabrication plant in Pyeongtaek will begin during the first half of 2015 and it's expected to commence operations in the second half of 2017.

"Our investment into the new fabrication plant will significantly influence the shaping of Samsung's future semiconductor business," Dr Oh-Hyun Kwon, CEO and vice chairman of Samsung Electronics, said in a statement.

According to Reuters, Samsung expects its chip production capacity to increase by a "low double digit percentage" after the facility begins production, but that the company is yet to decide whether it will make logic or memory chips.

Samsung said the plant is expected to help meet demand for advanced semiconductor products, but gave no further details on which chips the plant will focus on.

Samsung is expected to provide an earnings guidance update for its third quarter later this week. In its second quarter the company suffered a 25 percent year on year decline in its operating profit, which is heavily dependent on its smartphone business.

Following its second quarter results, analysts have had gloomy predictions for the current quarter — with Korean analysts forecasting in July an average of a 15 percent decline in operating profit, or around 8.59 trillion won ($8bn) over the quarter. According to Reuters, the average expected operating profit for Samsung's third quarter is at 5.6 trillion won ($5.2bn).

Samsung remains the world's largest handset manufacturer, but the company has been faced with stiffer competition in the Chinese market by local brands, such as Xiaomi, which earlier this year became the country's biggest selling smartphone brand. The other threat is Lenovo, which acquired Google's Motorola handset business earlier this year.

At the high end, Apple's iPhone 6 and 6 Plus have intensified competition with Samsung; in the smartphone market, while Samsung may shift far more units, the Cupertino company continues to make far more margin on its devices.

Samsung has also seen fiercer competition in the chip business on key products. Samsung was the sole supplier of Apple's A7 processor for the iPhone 5S, but was sidelined by Taiwan Semiconductor Manufacturing (TSMC) in the A8 processors for the iPhone 6 and 6 Plus, which made 70 percent of the chips while Samsung made 30 percent. Samsung however already is believed to have a contract in place with Apple to make the successor to the A8.

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