Samsung remains 'Wild Card' on capital expenditures

Figures show a steep upward trend of quarterly capital spending in the semiconductor industry since 1Q/16. Although there was a slight pause in the upward trajectory in 1Q/17, 2Q/17 set a new record for quarterly spending outlays. Moreover, 1H/17 semiconductor industry spending was 48 percent greater than in 1H/16. IC Insights believes that whether industry-wide capital spending in the second half of 2017 can match the first half of the year is greatly dependent upon the level of Samsung’s 2H/17 spending outlays. Not only has Samsung Semiconductor been on a tear with regard to its semiconductor sales, surging into the number one ranking in 2Q/17, but the company has also been on a tremendous capital spending spree for its semiconductor division this year. Samsung spent a whopping USD 11.0 billion in capital outlays for its semiconductor group in 1H/17, more than 3x greater than the company spent in 1H/16 and only USD $300 million less than the company spent in all of 2016. In fact, Samsung’s capital expenditures in 1H/17 represented 25 percent of the total semiconductor industry capital spending and 28 percent of the outlays in 2Q/17. While the company has publicly reported that it spent USD 11.0 billion in capital outlays for its semiconductor division in 1H/17 (a USD 22.0 billion annual run-rate), Samsung has been very secretive about revealing its full-year 2017 budget for its semiconductor group (it might be afraid of shocking the industry with such a big number). In 2012, the year of Samsung’s previous first half spending surge before 1H/17, the company cut its second half capital outlays by more than 50 percent, from USD 8.5 billion in 1H/12 to USD 3.7 billion in 2H/12. Will the company follow the same pattern in 2017? At this point, it is impossible to tell. IC Insights believes that Samsung’s full-year 2017 capital expenditures could range from USD 15.0 billion to USD 22.0 billion! If Samsung spends USD 22.0 billion in capital outlays this year, total semiconductor industry capital spending could reach USD 85.4 billion, which would represent a 27 percent increase over the USD 67.3 billion the industry spent in 2016. It is interesting to note that two of the major spenders, TSMC and Intel, are expected to move in opposite directions with regard to their 2H/17 capital spending plans. TSMC spent about USD 6.8 billion in capital outlays in 1H/17. If it sticks to its USD 10.0 billion budget this year, which it reiterated in its second quarter results, it would only spend about USD 3.2 billion in 2H/17, less than half its outlays in 1H/17. In contrast, Intel spent only about USD 4.7 billion in 1H/17, leaving the company to spend about USD 7.3 billion in 2H/17 in order to reach its stated full-year 2017 spending budget of USD 12.0 billion.