Why Samsung Plans To Double Down On The $170 Billion Logic Chip Market

by Trefis Team
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Last year, Samsung Electronics (OTC:SSNLF)  indicated that it would invest roughly $115 billion in its Samsung LSI – which makes microprocessors and other semiconductors – and Samsung Foundry businesses – which produces chips for third-parties – through the year 2030. This would enable the company to diversify its Semiconductor Revenues, which largely depend on the volatile memory markets. For perspective, Samsung’s operating profits are projected to fall by close to 40% in 2019 on account of the sharp decline in memory prices. On the other hand, the logic chip and foundry space could enable the company to post more stable semiconductor revenues and profits. In this analysis, we take a look at where Samsung’s semiconductor business currently stands and take a look at the potential of the broader logic chip market.

View our interactive dashboard analysis on Why Samsung Is Doubling Down On The Logic Chip Market

Samsung’s is currently overweight on the volatile Memory market

  • Samsung derives roughly 80% of its Semiconductor Revenues from the memory market, while its other Semiconductor operations, which primarily comprises of Logic chips and foundry operations, account for roughly 20%.
  • The memory market is quite volatile, and Samsung is likely to see Semiconductor Revenues decline by 34% in 2019.

Samsung’s exposure to Memory is likely to cause its Operating Profit to fall an estimated 40% over 2019

  • The decline is largely due to a sizable drop in DRAM prices over 2019.

However, the Logic Chip Market offers sizable opportunities and is much less volatile

  • While the memory chip market stood at $158 billion in 2018 per the Semiconductor Industry Association, sales are poised to decline sharply in 2019.
  • The Logic Chip market, including Microprocessors, stood at about $177 billion in 2018.

Margins in the Logic Chip and Foundry space may also be higher compared to Memory

  • While Samsung does not break-out margins for the memory and logic chip businesses, the margins of Micron, a pure-play memory company, on average, compare less favorably with TSMC, a foundry player, and Intel,  a processor major.
  • By doubling down on the logic chip space, Samsung could improve its margins and make them less volatile.

How Samsung’s Logic Chip operations compare with Intel – the largest processor maker, TSMC the largest foundry vendor, and Qualcomm – one of the largest mobile chipset vendors.

  • Samsung’s Logic chip related revenues have expanded from about $10.5 billion to about $11.8 billion between 2015 and 2018.
  • In comparison, Intel has seen its Processor revenues grow from $48.2 billion t $60 billion in the same period, while TSMC has seen its revenue grow from $26.6 billion to about $34 billion.

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