Samsung Electronics Co’s capital expenditure dwarfs that of competitors and has helped make it the world’s biggest maker of TVs, memory chips and flat-screen panels. Record capital expenditure (capex) this year may further pressure rivals.
Samsung and its affiliates plan to spend 47.8 trillion won (US$42 billion) this year on new product research and upgrading plants, the group said this month. The Suwon, South Korea-based company spent more than Sony Corp., Intel Corp. and Cisco Systems Inc combined in 2010.
The spending spree will enable the chips and display supplier to Apple Inc and Sony to build on record sales last year and boost profit that doubled in the five years to 2010. That may leave competing makers, already mired in losses from a glut of commodity chips, even farther behind in their quest to diversify into the higher-margin specialty semiconductors for phones and tablets that have made Samsung so successful.
“We have a Goliath in the technology industry,” said Kim Hyung Sik, a Seoul-based analyst at Taurus Investment Securities Co. “The gap between Samsung and the laggards will keep widening, particularly in memory chips.”
Sales by Samsung Electronics, the biggest unit of South Korea’s largest industrial group, were equal to 16 percent of the nation’s GDP, based on figures from the company and the Bank of Korea.
The company’s fourth-quarter profit probably rose to 3.99 trillion won from 3.42 trillion won a year ago, according to an average of 28 analysts’ estimates.
Samsung Electronics will spend as much as 40 trillion won of the group’s total budget, said four analysts, including Young Park, a Hong Kong-based analyst at Woori Investment & Securities Co.
The semiconductor and display businesses will get the most, they said.
The spending amid burgeoning sales and profit contrasts with Asian rivals — including Japanese chipmaker Elpida Memory Inc, which was unprofitable for four straight quarters to September and faces a deadline to repay debts. DRAM manufacturers lost a combined US$14 billion in the past three years, according to calculations.
Sony has not made a profit selling TVs in the past seven years. The Tokyo-based electronics maker is forecasting a fourth consecutive company-wide loss this year, amid slumping TV demand that has prompted a restructuring of the business. Last month, Sony decided to quit a panel-manufacturing joint venture with Samsung.
“Samsung’s strategy is to take advantage of its deep pockets and keep widening their lead over rivals,” said Im Jeong-jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co, which oversees about US$28 billion in funds.
LG Group, which includes LG Electronics Inc and LG Display Co, said on Jan. 13 its companies would reduce expenditure by 15 percent this year, citing slowing consumer spending in the US and Europe as a potential risk.
Taiwan Semiconductor Manufacturing Co (台積電), which competes with Samsung in contract manufacturing of chips, said on Jan. 18 it would decrease its equipment budget to US$6 billion this year from US$7.3 billion.
In 2010, Samsung had US$18.7 billion in capital expenditure. In comparison, Santa Clara, California-based Intel spent US$5.2 billion.
Apple spent US$2 billion in the year ended in September 2010. The Cupertino, California-based company, which more than doubled first-quarter profit and had cash and investments of more than US$97 billion, contracts most of its manufacturing to other companies, reducing the need for high capital expenditure.