Samsung to build $15-bn chip plant in S Korea as phones stall

Samsung Electronics Co will spend 15.6 trillion won ($15 billion) building a chip plant in South Korea as it heads for the roughest quarterly result in years amid competition from Apple and Xiaomi smartphones.

Construction in Gyeonggi province, south of Seoul, will begin in the first half of next year with semiconductor operations due to commence in 2017, Suwon, South Korea-based Samsung said in a statement. Samsung is shifting toward more complicated and lucrative processors to be the brains for new businesses such as wearable devices, smart cars and smart homes.

The biggest memory-chip maker is investing as its smartphone business struggles to stay dominant with Apple introducing bigger-screen iPhones and Xiaomi selling low-cost devices in more overseas markets. Third-quarter operating profit, due to be released on Tuesday, is projected to plunge 47 per cent and sales may drop 15 per cent in the steepest declines since at least 2009, according to analyst estimates.

"Semiconductor has been Samsung's long-time key business, while the company can no longer expect strong growth from its mobile unit," said Lee Min Hee, an analyst at I'M Investment & Securities Co. in Seoul. "The company is now making a huge investment for the future as its key mobile business isn't likely to contribute to profit as much as it used to."

Estimates cut
The company may increase spending on the new plant after the initial investment, which is triple the amount Tesla Motors Inc. may spend on its planned battery "gigafactory" in Nevada.

Profit at Samsung's chip unit was 2.14 trillion won in the third quarter, according to a Bloomberg News survey of analysts. That increase from 2.06 trillion won a year earlier is partly due to Samsung supplying semiconductors for the new Apple phones.

Shares of Samsung rose 0.9 per cent to 1,151,000 won in Seoul, paring this year's decline to 16 per cent. SK Hynix Inc, South Korea's second-largest chipmaker, slumped 5.1 per cent.

Analysts have been cutting their profit estimates for Samsung almost daily, with at least 27 of 42 tracked by Bloomberg reducing their estimates in the past four weeks.