Samsung faces ghost of technology future

By Robyn Mak

(The author is a Breakingviews columnist.)

HONG KONG, Dec 27 ( Breakingviews) - Samsung's heir is facing his ghost of technology future. Shares of the $230 billion South Korean technology giant led by 50-year old de-facto leader Jay Y. Lee have fallen by roughly one quarter in 2018, marking the conglomerate's worst performance in over a decade. Prices of its core product, memory chips, are falling because of a supply glut, and there is rising uncertainty about future sources of growth.

All things considered, pressure is building for the leader to find tech's next big thing. Early bets by Lee's father in so-called NAND and DRAM memory, used in smartphones and servers, led the South Korean firm to dethrone Intel as the world's top chipmaker by sales in 2017. For decades, the U.S. company was at the forefront of making microprocessors that powered PCs and laptops, but it missed the mobile boom, allowing Samsung to get ahead.

But that lead is less comforting now, with demand for memory chips cooling. Global smartphone shipments contracted 6 percent in the third quarter - the fourth consecutive quarter of annual declines, according to market research firm IDC. This also puts Samsung's other businesses, including smartphones and display screens, at risk.

The company is starting to develop components in areas like next-generation wireless telecommunications, 5G, as well as chips tailored for machine learning and self-driving cars. But competition is fierce. The emergence artificial intelligence has allowed the rapid rise of smaller, nimbler U.S. chipmakers like Nvidia and Advanced Micro Devices.

To catch up, Lee may have to tap into Samsung's war-chest which analysts at Bernstein forecast will top 119 trillion won, or $105 billion, by the end of 2019. The conglomerate has typically shied away from big deals but two years ago, in its biggest acquisition ever, paid $8 billion for auto-parts manufacturer Harman, betting on the rise of the smart-car. It's a good first step, but similar out-of-box thinking may be necessary if Samsung doesn't want to repeat Intel's mistakes.

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- U.S. semiconductor company Micron Technology on Dec. 18 warned that weakening demand from smartphones, computers and computers has led to a global supply glut in memory chips.

- In October, South Korea'sSamsung Electronics, the world's top memory chip maker, and rival SK Hynix also warned of a slowdown in demand and a drop in prices, marking the end of a two-year industry boom.

- The three companies combined dominate the market for DRAM memory chips, which help devices perform multiple tasks at once.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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