Analysis: Samsung’s lower 2011 capex plans

January 7, 2011 – Samsung’s announced 2011 investment plans, while still at record levels and growing across all its business areas, seem to be falling short of expectations in the semiconductor segment. Barclays analyst CJ Muse combs through the data to see what the implications are.

As the runaway top spender in chip capex — far and away more than heavyweights such as Intel and TSMC — Samsung is the bellwether (and cash cow) for many chip equipment suppliers, particularly in memory but increasingly in foundry/LSI as well.

Overall the Samsung Group pledges to spend 43.1 trillion won ($US 38.35 billion) in 2011 for all its businesses, up about 18% from 2010. Of that, about 10.3T won ($9.16B) will be in capital expenditures and facility investments for its semiconductor business — a dropoff from 2010’s ~12T won ($10.7B). (The company also pledges 12.1T won/$10.77B for R&D in 2011, up 14%, and 5.4T won/$4.80B each in LCDs and OLEDs.)

Pulling apart Samsung’s numbers in a research note, Barclays analyst CJ Muse notes that the company pegged its "final" 2010 capex at ~10T won, higher than its initially guided 9T won — implying that it pulled in some of its planned 2011 investments. The company’s 2011 semiconductor investments would be about -14% below the revised 2010 level, but Muse points out that the company has a recent history of increasing its targets, so its 2011 capex might have some upside.

Combined with an already anticipated industrywide slowdown in DRAM investments, Samsung’s preliminary 2011 DRAM spending projection appears to be significantly lower (6.3T won/$5.61B vs. Muse’s estimated 8.5T won/$7.56B). Those numbers might eventually climb, however, he reiterates, as Samsung continues DRAM node migration and expansion of Line 16.

On the other hand, Samsung’s 2011 foundry capex appears to be quite a bit higher than expected, 4T won/$3.56B vs. Muse’s 2T won/$1.78B expectation.

Incorporating Samsung’s 2011 capex plans, Muse says the banner 2010 for industrywide capex was even better: ~108% to $45.45B (vs. his previous 100% outlook). He’s projecting 5%-10% growth for 2011, possibly with upside surprises from TSMC and GlobalFoundries.


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