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Samsung to pour $6bn into system chip business

The move will give South Korean company a cushion against possible memory slump

Samsung aims to become the world's second-biggest contract chipmaker, says Kinam Kim, head of the division that includes semiconductor operations.

SEOUL -- Samsung Electronics will invest $6 billion in a new fabrication line for next-generation integrated circuits to bolster its contract chipmaking business rather than simply basking in a boom in the memory chip market.

The revelation came Friday as Samsung held a groundbreaking ceremony for a new building at a plant in Hwaseong, near the South Korean capital. The construction is to be completed by the second half of 2019. The state-of-the-art production line for system chips is slated to begin full-scale production the following year.

The new fab's extreme ultraviolet, or EUV, lithography equipment will be able to produce light with wavelengths about one-fifteenth those of current tech. That allows for etching circuits 7 nanometers in width or smaller -- a leap beyond the current cutting-edge technology capable of 10nm circuits. Some have predicted that EUV will allow for circuit widths to be narrowed to 5nm or smaller in the future. Samsung plans to incorporate the equipment at some existing factories within the year as well.

"With the addition of the new EUV line, Hwaseong will become the center of the company's semiconductor cluster," said Kinam Kim, president and CEO of Device Solutions, the Samsung division that handles contract chipmaking, as well as the mainstay memory chip business.

The huge investment in contract chipmaking is an unusual step for the South Korean memory chip giant. But Samsung appears to be preparing for a possible downturn in the memory chip market, as well as sharpening its competitive edge against the world's leading contract chipmaker, Taiwan Semiconductor Manufacturing Co.

Samsung is currently the world's fourth-place contract chipmaker, but according to one executive aims to reach the No. 2 spot behind TSMC. To that end, it plans to develop relationships with new clients, including auto parts makers.

Every year, Samsung and TSMC fight over orders for system chips for Apple's iPhones. The Taiwanese company has scored a string of wins in recent years, and appears to be in the lead for 2018 models of the smartphone as well, but some see Samsung staging a comeback with 2019 iPhone models.

In the year ended December, Samsung reaped about 74 trillion won ($68.5 billion) in sales from semiconductor operations. More than 80% of that came from memory chips, with the rest seen as attributable to image sensors and other operations, including contract manufacturing of system chips. Memory also contributed heavily to profits.

However, spot prices for NAND flash memory have fallen about 10% over the past three months, as the market comes down from last year's sustained high prices. The outlook for DRAM memory in 2019 and beyond is unclear as well.

By contrast, demand for system chips "will grow greatly," according to a source at South Korean brokerage SK Securities, due in part to demand deriving from the coming rollout of next-generation 5G mobile communications services around the globe.

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