Samsung's $26 billion bet: to corner the DRAM and NAND flash market

Date: 2017-12-11

After 50 years of development, the semiconductor market is still very active and is expected to grow 20 percent this year, foreign media reported. With high growth comes a shortage of supply, which is why DRAM and flash prices are going up this year.

Samsung owns half of the DRAM and flash memory markets. It plans to raise its capital spending budget for production by 1.5 times next year to $26 billion. In contrast, Intel's capital expenditure budget for 2017 is only $12 billion, up 25 percent from 2016. In fact, samsung's budget is about the combined capital expenditure budget of three big companies, Intel, TSMC and SK hynix in 2017.

Samsung's main rivals now face a tough choice. They either increase the capital expenditures budget, and ensure sufficient supply, so as to retain their market share, or simply give up competition, higher capacity for samsung will produce others difficult to achieve economies of scale.

Any company that wants to catch up with samsung faces a problem of oversupply, falling prices and widening losses across the industry. A semiconductor factory must be fully loaded to maintain the lowest cost, so long as the price can pay for all variable expenses and fixed costs, it is worth keeping the factory running.

But if they do not increase their budgets and increase capacity, they may face the consequences of shrinking market share, rising costs and eventual elimination. Don't expect Intel and micron ventures to stand up to samsung. Intel pulled out of the DRAM business decades ago.

Intel and micron rely on their 3D XPoint NVRAM (non-volatile flash memory) to gain a foothold in the DRAM and flash market. But that hope was doomed because they decided to tie 3D XPoint to Intel cpus. In addition, samsung can buy or acquire licensed technology from Crossbar or Nantero to compete with NVRAM.

For consumers, the good news is that in the next 12-18 months we should see cheaper DRAM and NAND flash memory. But in the long run, we may see samsung monopolize DRAM and NAND flash production, slow down price declines and stifle competition.

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