Samsung, known for its exceptional skill in "bottom fishing" during industry downturns, has stumbled in this cycle.
Following a 96% drop in profits in the first quarter of this year, profits continued to plummet in the second quarter.
Recently, Samsung Electronics released preliminary data for the second quarter of 2023, with quarterly sales reaching 60 trillion won (approximately 332.8 billion yuan), a year-on-year decrease of 22.3%.
Operating profit plummeted even more, down by 95.7% year-on-year, to just 60 billion won (approximately 3.3 billion yuan), setting a record low since the financial crisis of 2008.
Why has this business giant, which has successfully "bottom fished and expanded" in multiple industries, now "hit a wall" in the chip industry?
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The global chip industry has entered a downcycle once again.
If you asked a Chinese person on the street five years ago, "Do you know about the chip industry?", probably very few would have known.
Now if you ask again, even elementary school students can answer—"chokehold" project.
The chip industry is not only very important, but its complexity is also among the top few, requiring the cooperation of all parties from production to application.
The United States has an advantage in chip design, Europe and Japan possess high-end photolithography machines, Taiwan's TSMC excels in chip manufacturing, and countries around the world use chips to produce more products.When the economy is doing well, people's purchasing power is strong, and there is often a global shortage of chips, which also leads to price increases.
During the "price surge" in 2021, Samsung Electronics made a whopping 51.57 trillion won (about 273.16 billion yuan) for the year, a year-on-year increase of 43.29%.
However, once the economy goes downhill, the demand for electronic products decreases, chips become hard to sell, and the sales and profits of companies will decline.
Looking back at Samsung's history of success, economic downturns may not be entirely bad. Samsung, which is financially robust, is good at fighting "prolonged battles," exhausting its competitors, and then acquiring them at low prices. This move is jokingly referred to as the "counter-cyclical strategy."
The largest conglomerate in South Korea, which has won battles repeatedly over the past few decades, now seems to have hit a tough spot.
It can be said that this is a result they brought upon themselves.
Samsung has reluctantly lost its largest market.
South Korea's advantage lies in the category of "memory chips," with giants such as Samsung Electronics and SK Hynix.
In the era when chips could be freely traded, Samsung exported at least 60% of its memory chips to our country every year.
But with the introduction of the U.S. ban, Samsung's most competitive memory chips, DRAM and NAND, have been explicitly restricted in exports.Although Samsung is not an American company, it cannot escape the control of the United States. It not only voluntarily reduced its chip exports to China by nearly 30%, but also refused to provide chip foundry services to Chinese companies such as Huawei.
Samsung once hoped to make up for the market share lost in China by earning money from the United States, and even invested $200 billion to build factories in the United States.
However, not only has it not received the subsidies promised by the United States to this day, but it has also watched helplessly as China's domestic chips have made up for the imported shares.
What's worse, the Biden administration has strictly banned South Korea from exporting chips to China, while giving the green light to domestic companies, granting the American chip giant Western Digital a license to supply Huawei.
It really fits the old saying: being an enemy of the United States is dangerous, and being an ally of the United States is fatal.
Now, South Korean chips are in a dilemma. Even if the price is reduced, they cannot be sold, and the chip inventory rate once reached as high as 266%.
In order to save itself, Samsung not only reduces marketing costs but also hopes to expand contract manufacturing capabilities - producing chips for other companies.
It's really a good cycle of heaven, and heaven spares no one.
Will China save Samsung this time?
Now, Samsung wants to return to the Chinese market. After a lot of effort, it finally got a one-year exemption period from the United States.Koreans fantasize that Samsung's chips are still in high demand, and that Chinese companies will buy as many as they sell. However, China has not been standing still. In the past few years, amidst being cornered by the United States, China's chip industry has developed rapidly.
In the field of memory chips where South Korea once had an absolute advantage, China now has Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT).
YMTC focuses on NAND flash memory, while CXMT focuses on DRAM memory. It is expected that by 2025, China will achieve a 70% self-sufficiency rate.
South Korean companies want to stand back in the center of the stage, they need to show their strength and offer products that are truly technologically advanced and of good quality at a reasonable price.
Otherwise, no one's money comes from the wind, why should they buy your expensive and ordinary products?
When YMTC started mass production of 232-layer NAND ahead of Samsung, Koreans suddenly realized that they no longer had a technological moat.
Realizing that things were really serious, Samsung hurriedly showed goodwill to China.
In March of this year, Samsung's president Lee Jae-yong came to China again after three years to attend the China Development High-Level Forum titled "Economic Recovery: Opportunities and Cooperation."
In April, Samsung officially announced that it would invest up to 13.8 billion to build an SDI battery R&D center in Shanghai.These actions have been interpreted by the outside world as Samsung turning to China for help, hoping to regain its share in the Chinese semiconductor market.
When Samsung initially chose to follow the United States in "decoupling" from China, they might not have anticipated this outcome; their tried-and-true methods have failed when faced with China's chip industry.
Whether the crisis Samsung is currently experiencing will spread from its semiconductor business to other areas remains to be seen, and only time will tell.