​Samsung Electronics (005930.KS) announced it would build a new semiconductor fab in June of 2020, relatively soon after it completed construction of its P2 fab in Pyeongtaek, South Korea.  The P3 fab was to start construction in September 2020 and was to begin operation in late 2021 or early 2022, the 3rd plant at this site, and a bit larger (~75%) than P2.  The fab was originally thought to be focused on DRAM and NAND production and was to feature the latest production technology that is available to the company, logically, EUV, and would add to Samsung’s dominance of the memory market.  Back in May of this year it was indicated that Samsung would begin to place orders and install equipment at the fab and complete construction by the 2nd half of the year.
The fab is expected to cost between $23.35b and $31.14b over the next few years as the fab is fully built out, and the company has enough land at the site to build three additional fabs (P4 – P6) with a combination of NAND, DRAM, and foundry capacity going forward, however it seems Samsung is facing the same inflationary cost increases that we as consumers have been facing, despite the fact that Samsung affiliates are some of the major suppliers to the project.  Samsung C&T (028260.KS) has increased its contract price by 34.4% against the original contract,  Samsung Engineering (028050.KS) has raised its contract price by 40.0% and Samsung Heavy Industries (010140.KS) has raised its contract price by 24.1%, putting the increase for just these three affiliates up by 35.1% in aggregate, or an additional $778.5m US, with all three citing increases in raw materials and labor costs as the reason behind the increases.
While the construction and the equipment installation continues, some of the ongoing contracts have been pushed out by as much as a year, which we expect means that Samsung is focusing on finishing specific P3 projects and delaying the build-out of others in this large fab.  Intel (INTC) is also facing a similar situation as it plans out its new fab in Magdeburg, Germany, as the cost has risen from 18.07b US to 21.26b US, a 17.65% increase, with the company indicating that it has delayed the start of construction for the project, which was to begin in the 1st half of 2023, even with the $7.23b promised by the German government toward the project.
While none of this is good for the global economy, it does have one positive outcome, and that is to slow the capacity increases that have been planned for the semiconductor space, which we expect would cause an over-supply situation  in 2024 and 2025.  While the delays will inevitably move back into the queue as overall consumer demand begins to stabilize, at least the build-outs will be a bit more staggered, although China is still a wild card that will likely see less semiconductor planning changes as the battle with the US government over semiconductor equipment continues.  China has little choice but to build capacity as it sees both external supply and demand decrease.  While China might not be able to build advanced node capacity, they can add more mature nodes for internal consumption and wait until the global climate is ready to allow them back, at which point we expect they will dominate the generic  semiconductor space, as they have done in both the LED and display industries.

Back a bit over a year ago, Samsung Electronics (005930.KS) announced that they had chosen a site in Taylor, Texas for their new 6 million square foot semiconductor fab that is expected to have a $17b price tag.  As shown in Figure 3, the site was essentially open farmland, although Figure 4 shows the current status of the site work.  Samsung has just begun to order basic cleanroom equipment from a number of South Korean suppliers, with deliveries scheduled for January of 2023.  The equipment is thought to be specialized air conditioning and filtering units that are external to the cleanroom, which can be placed before construction is completed.
The town of Taylor has also approved the addition of 9 new applications from Samsung for additional facilities likely to be built in the future, expanding the tax rebate zone to 1,268 acres, which would allow for additional fabs to be built on the site without additional tax abatement approval.  The town has also approved a $271m application from Linde (LIN), which will provide co-located industrial gases used at the plant.  Samsung has been offering an internship program to the town’s independent school system, donated $1m to 4 local non-profits, and is sponsoring job fairs to residents.  The plant is expected to need ~2,000 workers once it begins full-scale operation, and while we expect senior management will come from Samsung in Korea and from Samsung’s other fabs in Texas, the job picture for the region seems positive, especially as suppliers commit to local facilities.
The ground-breaking ceremony, which was expected earlier this year, has still not taken place, site work has continued and foundations are being laid, with the initial production scheduled to begin in the 2nd half of 2024, although we expect things are a bit behind schedule.  That said, these early equipment orders bode well for clean room construction to begin early next year, and signal that Samsung is fully behind the project and the timeline is progressing although there is still considerable equipment that has yet to be ordered, which leads us to expect a few months might be added to the production date.

​Samsung Electronics 005930.KS) has changed suppliers for next year’s Galaxy Z Fold 5, and seems to be eliminating smaller level suppliers for the Galaxy S flagship line, as it moves more camera business to its affiliate Samsung Electro-mechanics (SEMES) (009140.KS).  For those high-end models, Samsung has eliminated Partron (091700.KS), who was a small supplier for the Galaxy line, and will be using SEMES, MCNEX (097520.KS), and Cammsys (050110.KS) for the Galaxy Flip 5 front camera, and for the Fold 5 Samsung will use the same three suppliers with Shenzhen Sunny Optical (002876.CH) as a secondary supplier, while the upcoming Galaxy S23 line will use cameras from SEMES, Sunny, Powerlogics (047310.KS), and Namuga (190510.KS), with Partron as a back-up supplier.
Partron is trying to diversity, lessening its reliance on the smartphone business, and hoping to move into the automotive camera sector, perhaps a result of Samsung’s supplier changes, but they are still expected to be supplying cameras for Samsung’s mid-to-low priced Galaxy A and Galaxy m series which are their higher volume models but face even more price pressure from Chinese brands.  All in, Samsung’s mobile division remains under pressure to reduce costs, and has been and is expected to push even more business toward OEM’s in 2023.  This could mean less business for South Korean component suppliers, as OEMs have component source decision making license, and as Samsung pushes more business toward its own affiliates, so the race to be included in those products, such as the foldables and flagship phones, becomes even more important.

Semi.org has made their predictions for silicon wafer shipments (area) through 2025, with growth of 4.8% this year and growth each year through 2025 except 2023.  Simply put, macro conditions in 2023 are blamed for the decline in polished wafers, but growth resumes again in 2024 and 2025, which we have to assume means that inflation is brought under control in 2024 and beyond.  Hopefully, that will be true, but we expect estimates to come down a bit further  for 2024 & 2025 as we move through 1Q 2023.

As we have been tracking TV set pricing for Samsung’s (005930.KS) 8K and 4K Mini-LED/QD and QD only sets since their release in May of last year, along with this year’s models, we can get a good picture as to where Samsung set pricing is relative to premium TV set pricing.
Samsung has eliminated a number of last year’s models from its website, particularly the top-end (900 series) 8K mini-LED/QD sets, (the 85” model had a price of $5,000 on our last check) some 4K mini-LED/QD sets (85A) and some quantum dot only sets (80A).  Most are still available on Amazon (AMZN) and a few other sites, but at much higher prices than where they ended on Samsung’s site.  More importantly, there was relatively little discounting on the remaining 2021 models over the last month or so.
That was not the case with the 2022 models, where discounting heading into November was very heavy.  The six 8K min-LED/QD sets offered this year saw a 15.7% drop over the last 55 days (9/9 to current), the 12 4K mini-LED/QD sets saw a 12.3% decline, and the QD only sets (2022 only) saw an 8.7% decline, while all 4K sets combined saw a 10.7% decline, and the value of the 2022 sets on a price/in2 of surface declined by 39.4% so far this year.
This puts 33 of the 36 sets in the 2022 mini-LED/QD or QD only line at their lowest point this year, with the 3 that are not at their lowest point all being 98” sets that have remained at $15,000 since they were released.  Looking at Figure 1, it is obvious that TV set price reductions have begun earlier this year than last and while this year’s year-end prices might be closer together than current prices would indicate, we expect they will be lower given the economic situation this year. 
With Black Friday only 25 days away, we expect Samsung to continue to offer more aggressive discounts this year to entice customers who are facing a much weaker economic scenario than last year.  The TV space overall has already been facing a difficult year as we have noted in the past, but while brand shipment/production expectations have declined as the year progressed, primarily in the 2nd half, more recent cuts seem to indicate that TV brands have come to a point where they have to choose between reducing prices to gain unit volume or trying to maintain margins on lower unit sales.  Samsung has recently cut its shipment/production expectations by ~12.5%, and given that they are the largest TV set producer globally, we expect they are indicative of what other brands are contemplating.  If we were to apply the same reduction that Samsung recently made and applied it to all of the other brands, the result would be shown in Figure 2 ‘current column.  Note that some brands will not see cuts that large while others will see worse, so the ‘current’ column is an illustration, not an estimate.  We expect actual 4Q results to be modestly better than shown.

One doesn’t usually think of the washing machine business as a dog-eat-dog market but the global household laundry equipment market is a ~$101b market, along with the inevitable ‘smart’ washing/drying’ category driving much of the growth.  The global market is fragmented with China’s Haier (600690.CH) the leader with a ~20% share, followed by Whirlpool (WHR) (14%), but the ‘other’ category is a big one at over 30%, pointing to a number of smaller brands that are popular regionally.  LG Electronics (066570.KS) has a lesser share (~6%) and South Korean rival Samsung Electronics is part of the ‘other category’, although in the US both LG and Samsung are popular contenders given their focus on ‘smart’ versions of washer/dryer products.
A few years back the former administration instituted trade restrictions on South Korean washers and dryers to help US brands (Whirlpool) to maintain a leading market share, and while those restrictions have been lifted, both the US and global washer/dryer markets remain quite competitive.  Samsung is adept at high volume manufacturing and cost containment in the consumer electronics space and has tried to bring that expertise to their consumer appliance business, however Samsung’s typical approach of pitting suppliers and technologies against each other to lower costs seems to have backfired when it came to their washer business.
Last year Samsung received more JD Power awards for its washers and dryers than any other brand, however they were forced to recall 86.2% of their Bespoke Grande AI front loading washers that they produced between September 2021 and May of this year due to defects in the washer door.  Those defects were allegedly caused by Samsung’s attempt to cut costs by changing suppliers and the formulation for the adhesive that seals the glass to the washer door.  Not only did the company have to issue an expensive recall, but one of its division presidents was called before the Korean Nation Assembly to explain why the defect occurred.
It seems that Samsung’s traditional adhesive supplier, Henkel (HEN.XE) found itself in competition with HB Fuller (FUL), who was providing Samsung with an adhesive that was 25% less expensive than Henkel’s silicon enhanced adhesive.  Fuller’s adhesive was less expensive because it was based on a polyurethane base, different from most washer adhesives, but to Samsung it represented a bit more margin or at least an offset to some of the raw material costs seen over the last two years.  Unfortunately the polyurethane adhesive turned out to be less resistant to heat and other chemicals in detergents and was said to be the cause of the leaky doors, the recall, and the embarrassing testimony. 

Given that the headlines over the Labor Day weekend were abounding with comments on the discounts available due to overstocked items in the CE space and beyond, and that the shortages and transportation bottlenecks are rapidly ending, we thought it appropriate to check Samsung’s (005930.KS) Mini-LED/QD Tv pricing to see if such discounts were apparent in that TV space.
While it was only 22 days since we last checked prices, it turns out there was a bit more price movement than we might have expected, although we know the inventory situation in the TV space overall entered the period at a higher than normal level.  There was considerable disparity between Samsung’s 2021 TV line[1] and the new 2022 line.  In terms of price movement, only 5 sets in the 2021 line saw a decrease in price, while 25 saw price declines in the 2022 line, indicating in which model years the excess inventory was held.  Further, the average period decline for the 2021 line was -0.5% while the average period decline for the 2022 line was 6.3%. 
More telling is the fact that the average decline from the original release price for the 2021 line was 27.6% while the average price decline from the original price for the 2022 line was 21.8% but the 2021 decline took place over 474 days, while the 2022 decline took place over 146 days, a rate of decline almost twice as fast as last year..   While we hesitate to speculate on where that would put 2022 Mini-LED/QD TV prices by next year, with 17 2022 models at their lowest price since release and only 10 at their lowest out of last year’s line, the trend toward lower Mini-LED/QD and QD only TVs seems set, at least into the holidays.
All in, it seems Samsung is certainly a bit more aggressive as to pricing for its Mini-LED/QD line this year, and with offerings from TCL (000100.CH), LG Electronics (066570.KS), Sony (SNE), Philips (pvt), Konka (000016.CH), Huawei (pvt) and Hisense (600060.CH) either available or announced this year, as opposed to Samsung, TCL, and LG last year, it is not surprising that Samsung is competing a bit more aggressively this year.  To get an idea of the competition and range of prices we put together a list of currently available Mini-LED TVs and prices.  We note that we cannot certify that all models shown have Mini-LED and quantum dots and we not that all models vary as to other features.


[1] Our data includes only Samsung’s Mini-LED/QD and QD Only TV lines and does not include Samsung’s generic LCD TVs.

While Samsung Electronics’ (005930.KS) smartphone production goals for this year were optimistic when they were made late last year, they now seem even more optimistic given the confluence of events that have suppressed smartphone sales across the globe.  Samsung’s original production estimate for this year was for the production of 240m units and an additional 60m to 70m produced by ODM, for a total of 300m to 310m.  Samsung shipped 74m units in 1Q but likely produced ~77m units, leaving an excess of ~3m units.  Based on our estimates for Samsung’s production and shipments for the remainder of the year, we expect using Samsung’s original production estimate (single point of 305m units), the company would overproduce by between 13m and 14m units.

​[1] 5 Year Average Share of Full Year Shipments
[1] Aggregated shipments from multiple sources

​Based on our existing shipment estimates for 2Q – 4Q we expect Samsung would likely reduce production in 2Q and 3Q, with signs that they have already reduced production in April and a bit more severely in May seem to indicate that they are at least at this point on the path to a reduction in overall production this year.  We have seen estimates for production as low as 280m units but we remain a bit more optimistic at 290m based on what we know so far.  Our biggest concern would be if 2Q shipments come in lower than 68m units, which would push us to lower full year again, although we expect Samsung will push production back up in June as the COVID restrictions in China are loosened.
The effect of reductions in Samsung’s smartphone production plans will likely be felt more by ODMs, as Samsung will likely focus on marketing the more profitable flagship phones that it produces internally, and we noted last week that Samsung was already expected to reduce the number of feature phones it produces for the India market this year, which are produced by Dixon Technologies (DIXON.IN).  We expect Samsung’s other ODM, most likely Wingtech (600745.CH) and Huaqin (pvt) will have seen some cutbacks, with Samsung Display (pvt), an affiliate of parent Samsung Electronics, seeing less of a reduction as it produces the Galaxy S series flagship line and the Z Flip & Z Fold, Samsung’s foldable smartphone offerings.

​We have noted that expectations for Samsung Electronics’ (005930.KS) smartphone shipments have been declining as the company pulled back orders from component suppliers and OEMs.  Expectations for Samsung’s own smartphone production have also declined from the initial plan to produce 333m units, while shipping almost 300m, to shipping 260m units, less than the number shipped last year, although still better than 2020 when only 250m were shipped, according to South Korean press, although our 2020 number of 257.6 is a bit higher.
Samsung had expected to ship 60m units in the 1st quarter, and met that goal, but fell short of the 53m it expected in 2Q, shipping 48m units.  3Q internal expectations were for 47m units, and expectations are for 46m, which is expected to be met.  Samsung has yet to set a target for 4Q shipments, particularly as they will begin to produce phones for the Galaxy S23 to be released in 2023, but looking at just October/November expectations of 30m units, production estimates seem to be falling below last year’s total, although we see less of a shortfall (-2.8%) than others as we build in ~20m units for December production. 
Actual total units shipped will also include OEM units and channel inventory from 2021, but we expect that Samsung has cut back OEMs even more than it has cut back its own smartphone production as we expect internal margins are higher than those from OEMs.  All in, macro issues have affected almost all smartphone brands, with Apple (AAPL) expected to be the only major brand seeing growth this year, but we expect even iPhone shipments felt the sting of weak consumer confidence as we entered 3Q, which means the iPhone 14 needs to be enough to give consumers a reason to upgrade.  It is going to be a difficult 2H for all smartphone brands, with Apple still at risk for a bit of disappointment in 4Q in our view.