Samsung Bets on Silicon as Mobile Device Biz Falters

No. 1 global mobile device-maker Samsung Electronics is plowing $14.7 billion into a new chip facility geared to meet demand for next-generation silicon to power handheld devices.

According to Reuters, the Korean giant is betting on silicon to shore up its mobile fortunes, as Apple is squeezing Galaxy in the top end of the market, and Chinese rivals like Lenovo and Huawei are taking share on the low end.

According to Strategy Analytics, in the second quarter Samsung’s global share fell to 25.2 percent, down from 32.6 percent a year ago. And, it’s the second reporting period of losses.

“Samsung shipped 89 million smartphones worldwide and captured 31 percent market share in Q1 2014, dipping slightly from 32 percent a year earlier,” the firm said. “This was Samsung’s first annual market share loss in the smartphone category since Q4 2009.”

Because of this weakness, analysts are expecting July-September operating profit to hover around $5.24 billion, which is the lowest since the fourth quarter of 2011.

Samsung warned investors when it reported Q2 earnings, including its worst profit in two years, that the second half of 2014 would remain "a challenge," thanks to competition. Unfortunately, the situation is due to become potentially even worse.

“Huawei is expanding swiftly in Europe, while Lenovo continues to grow aggressively outside China into new regions such as Russia,” Strategy Analytics explained. “If the recent Lenovo takeover of Motorola gets approved by various governments in the coming months, this will eventually create an even larger competitive force that Samsung and Apple must contend with in the second half of this year.”

"Right now the only part of the company that is bringing in steady profits is the semiconductor division, so it looks like the company will keep investing in the business," IM Investment analyst Lee Min-hee told Reuters.

The plant is scheduled to be located in Pyeongtaek, roughly 47 miles south of Seoul, and will create 150,000 jobs (which equals a third of the city's population). The timeline for going into production, and a decision on whether it will make logic or memory chips, has not yet been determined.