Samsung To Invest Nearly $15B In New Chip Plant In South Korea Amid Fears Of Rough Third Quarter

Samsung announced Monday that it will invest 15.6 trillion won (about $15 billion) to build a new chip production facility in South Korea. The announcement has come at a time when the company is expected to face its roughest quarter in years as competition from rivals in the smartphone business has intensified in the last few months.

The construction of the new plant, which will be located in Pyeongtaek, a city about 46 miles south of Seoul, will begin in the first half of 2015, and operations are expected to start during the second half of 2017. The factory will manufacture both memory and processor chips, and is likely to boost Samsung’s competitiveness in the semiconductor industry.

“The new fabrication plant is expected to help Samsung meet growing demand for advanced semiconductor products,” Samsung said, in a statement.

The move by the South Korean conglomerate is considered to be a major bet on the semiconductor industry as the company's key smartphone business has struggled to maintain its dominance amid tough competition from the likes of Apple and China's Xiaomi.

While the iPhone maker confronts Samsung at the high end segment of the smartphone market, Chinese manufacturers of inexpensive yet feature-rich devices eat into Samsung’s profit margins at the low end, Reuters reported, adding that the company's semiconductor business could be the sole redeeming feature during the third quarter results announcement Tuesday.

According to a survey of 42 analysts by Thomson Reuters, Samsung’s operating profit for its July-September quarter could come in at 5.6 trillion won ($5.2 billion), to mark its weakest performance since the fourth quarter of 2011.

Bloomberg quoted analyst estimates predicting that Samsung’s third-quarter operating profit is projected to fall 47 percent, while sales could slump 15 percent “in the steepest declines since at least 2009.”

“Semiconductor has been Samsung’s long-time key business, while the company can no longer expect strong growth from its mobile unit,” Lee Min Hee, an analyst at I’M Investment & Securities Co. in Seoul, told Bloomberg. “The company is now making a huge investment for the future as its key mobile business isn’t likely to contribute to profit as much as it used to.”

Samsung could reportedly invest even more capital on the upcoming plant in Pyeongtaek after the initial investment, which is double the cost of the company’s largest overseas factory in China. Shares of Samsung rose 0.8 percent in afternoon trade in Seoul on Monday.