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At more than 50 years of age, the semiconductor market is still sprightly, with growth this year in the 20 percent range. And with high growth comes short supply, which is why DRAM and flash prices have risen this year.
Samsung, which already produces around half the world’s supply of both commodities, plans a dramatic increase – almost 2.5x – in next year’s capital expense (capex) budget in production facilities, to $26B. To put this in perspective, Intel’s 2017 capital budget – after a 25 percent increase from 2016 – was only $12B. In fact, Samsung’s bet is almost as large as the total 2017 capex budgets of the next three largest – Intel, TSMC, and SK Hynix – combined.
Given that a greenfield plant now goes for $7B, this ups the ante in the high stakes poker of semiconductor manufacturing. The risk: industry-wide oversupply, slashed prices, and major balance sheet damage. But it’s not all bad: we get cheaper memory and storage! For a while.
Endgame
Each of Samsung’s top competitors now faces a difficult choice. Either they up their capital budgets to provide enough supply to maintain their market share, or give up trying to compete, as Samsung’s higher volumes translate into economies of scale that no one else can match.