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Samsung’s $26 billion bet

At some-more than 50 years of age, a semiconductor marketplace is still sprightly, with expansion this year in a 20 percent range. And with high expansion comes brief supply, that is because DRAM and peep prices have risen this year.

Samsung, that already produces around half a world’s supply of both commodities, skeleton a thespian boost – roughly 2.5x – in next year’s collateral responsibility (capex) budget in prolongation facilities, to $26B. To put this in perspective, Intel’s 2017 collateral bill – after a 25 percent boost from 2016 – was usually $12B. In fact, Samsung’s gamble is roughly as vast as a sum 2017 capex budgets of a subsequent 3 largest – Intel, TSMC, and SK Hynix – combined.

Given that a greenfield plant now goes for $7B, this ups a ante in a high stakes poker of semiconductor manufacturing. The risk: industry-wide oversupply, slashed prices, and vital change piece damage. But it’s not all bad: we get cheaper memory and storage! For a while.


Each of Samsung’s tip competitors now faces a formidable choice. Either they adult their collateral budgets to yield adequate supply to say their marketplace share, or give adult perplexing to compete, as Samsung’s aloft volumes interpret into economies of scale that no one else can match.

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Anyone who attempts to compare Samsung faces a daunting awaiting of industry-wide oversupply. descending prices, and large losses. Semiconductor plants have to be run during full ability to obtain lowest costs, so as prolonged as prices cover all non-static expenses, and make a grant to bound costs, such as debt service, it’s value it to keep them running, even during a loss. It isn’t easy to diminution production.

But if they don’t ante up, competitors face a awaiting of timorous marketplace share, aloft costs, and eventually removing out of a business altogether. And don’t count on an Intel and Micron corner try to opposite Samsung. Intel got out a DRAM business decades ago, and they’ve finished really good notwithstanding it.

Intel/Micron might be counting on their 3D XPoint non-volatile RAM – NVRAM – to rewire a DRAM and peep markets in their favor. But, IMHO, their preference to tie 3D XPoint firmly to Intel CPUs dooms that hope. Besides, Samsung can buy or permit competing NVRAM technologies from Crossbar or Nantero.

The Storage Bits take

The good news for us consumers is that in 12-18 months we should start saying a lapse to ever-cheaper DRAM and peep as new ability comes on line. But longer tenure we could face a universe where Samsung dominates DRAM and peep production, negligence cost declines, and a default of competition.

Ever cheaper memory and storage have driven a tellurian acclimatisation to a digital civilization. If we are to keep adult a gait – and I’d disagree it’s essential for traffic with issues trimming from meridian change to AI – we can’t means a permanent slack in their cost-effectiveness. This is bigger than a singular industry.

Courteous comments welcome, of course.

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