Samsung chief's visit to chip plant signals spending boost

In his first appearance since pardon, Lee Jae-yong holds rare forum with employees

Samsung Electronics Vice Chairman Lee Jae-yong talks with employees at the company’s chipmaking complex in Hwaseong, Gyeonggi Province, Friday. (Samsung Electronics)

Samsung Electronics‘ de facto leader Lee Jae-yong’s visit to the groundbreaking ceremony of its 20-trillion-won ($14.97 billion) research and development center in the southern suburb of Seoul signals a spending boost as part of its “supergap strategy.”

Lee told some 100 staff and executives at the ceremony held at Giheung Campus -- the birthplace of Samsung‘s semiconductor business four decades ago -- that Samsung employees should “maintain its tradition of investing in the future,” calling for aggressive investment in new technologies.

The event, aimed at celebrating the construction of a new 109,000 square-meter R&D facility over the next six years, also included a lunch event attended by Lee with Samsung employees at a cafeteria at the Giheung location, as well as a discussion forum with employees at the neighboring Hwaseong Campus. These are among Samsung’s chip fab locations along with Pyeongtaek, Gyeonggi Province.

Friday’s event marked Lee‘s first public appearance since the 54-year-old business magnate was granted a pardon by President Yoon Suk-yeol earlier this week, which lifted any restrictions imposed on Lee’s leadership for the past few years.

The eye-popping spending plan by the South Korean tech giant is aimed at strengthening its next-generation technologies for memory solutions, processors and contract chip manufacturing, Samsung said in a statement.

Lee‘s activity highlights the tech giant’s need to increase spending based on a long-term blueprint.

Samsung Electronics‘ second-quarter financial statement showed that the spending allocated to R&D as a percentage of sales has shrunk.

Samsung Electronics’ R&D expense-to-revenue spending came to 7.9 percent in the first half of this year, down by 0.6 percentage point from the previous year, although the company‘s spending on R&D rose 10 percent to 12.18 trillion won during the cited period.

Also, its investment in facilities has shrunk by 13.5 percent to 21.7 trillion won in the first half compared with the previous year. This starkly contrasted with domestic memory chip rival SK hynix, which logged a 10.4 trillion-won facility investment from January to June, up nearly 40 percent on-year.

Samsung Electronics was at the bottom of the table for facility spending out of the top 500 Korean companies in relation to revenue, according to data compiled by market tracker CEO Score.

Moreover, Samsung has remained relatively silent on strategic acquisitions since confirming an $8 billion deal to take over automotive digital cockpit maker Harman International. Harman currently holds about 25 percent of the market share in the global digital cockpit industry.

Analysts noted that Lee’s imminent return to management will spur investment and encourage faster decision-making by the tech juggernaut.

“We expect Samsung to ramp up market dominance through its investment in futuristic chip manufacturing to maintain a ‘supergap’ with chip competitors in the field of DRAM, NAND and foundry services,” noted Kim Dong-won, an analyst of KB Securities.

“Professional managers in Samsung‘s affiliates have played a limited role in setting up long-term groupwide strategic planning and in making large-scale mergers and acquisitions decisions. However, Lee’s return to management is expected to speed up the decision-making process for key strategic choices as Lee can discuss matters with professional managers and task force leaders.”

Over the past couple of years, Samsung‘s focus on chip research has given birth to a new suite of memory technologies, especially for internet servers. These include memory modules applicable with the Compute eXpress Link interface, double data rate 5-standard memory, and the use of extreme ultraviolet lithography solutions to ship 14-nanometer DDR5 DRAM products.

The volume of cash held by Samsung Electronics came to 111.1 trillion won as of end-June.

(consnow@heraldcorp.com)

By Son Ji-hyoung(consnow@heraldcorp.com)