June 15, 2007 / 12:56 AM / 13 years ago

Samsung Elec to invest $3.5 billion in U.S. chip plant

SEOUL (Reuters) - Samsung Electronics Co. Ltd. (005930.KS), the world’s largest memory chip maker, said it would invest $3.5 billion in its 10-year-old U.S. chip plant by 2008 to produce flash memory chips.

Samsung on Friday unveiled a new NAND flash memory production line, which it started building in 2006 at the Texas plant and uses advanced 12-inch wafers.

The announcement on Friday was the first time the company has disclosed the total amount it will to invest in the NAND facility, which will produce flash memory chips for use in popular consumer gadgets such as music players, cell phones and digital cameras.

Memory chip makers have been hit hard by tumbling prices of dynamic random access memory (DRAM) chips this year due to increased supply, although NAND prices have recently bottomed out and demand for the chips is growing.

Samsung’s local rival Hynix Semiconductor Inc. (000660.KS) is expected to switch more capacity from DRAM to higher-margin NAND chips. Japanese NAND maker Toshiba Corp. (6502.T) also plans to speed up its flash memory expansion plans and boost production capacity by 70 percent by mid-2008.

Samsung is the world leader in both DRAM and NAND. Hynix is ranked second in DRAM production while Toshiba is the second-largest NAND maker.

“Samsung remains focused on DRAM right now, but it has to take a step to boost NAND given Toshiba’s aggressiveness,” said Jay Kim, an analyst at Hyundai Securities.

Samsung said in a statement the NAND production line would begin operations in the second half of 2007, and output would be ramped up to 60,000 wafers per month by 2008.

“The new production line is at the centre of Samsung’s NAND expansion plan,” said Song Myung-sup, an analyst at CJ Investment & Securities. “But its impact on overall NAND supply will be limited as mass production will start probably only in the fourth quarter.”

The Texas plant, Samsung’s only semiconductor plant outside South Korea, currently produces only DRAM chips, used in personal computers.

Analysts expect NAND chips to lead an earnings recovery for chip makers in the second half. Prices have rebounded recently due to expected global capacity constraints to meet demand from new applications, such as computers powered by flash memory chips and Apple Inc.’s (AAPL.O) iPhone.

U.S. research firm iSuppli forecast annual price declines of 61 percent for NAND in 2007, a similar pace to last year’s 62 percent, while expecting a fall in DRAM prices to accelerate to 46 percent from 11 percent.

Shares in Samsung, the most valuable technology company outside the United States, fell 1.38 percent to 573,000 won by 0511 GMT, while the wider market .KS11 made a fractional gain. The stock has slipped more than 5 percent in the last six months.

Additional reporting by Cheon Jong-woo

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