Samsung starts new chip line to boost flash memory share

Samsung's new production line, its first in about five years, will help the company sharply lower production costs of the chips and could exacerbate oversupply in the market, stifling smaller rivals.

Apple Inc, the maker of popular iPhones and iPads, and Sony, which joined the crowded tablet market last month with two new devices, buy flash memory chips from Samsung.

The cost-competitive facility will make it difficult for its major customers to shift away to other suppliers.

Apple, Samsung's biggest customer locked in a series of patent legal battles with the South Korean firm, is trying to reduce sourcing from the emerging competitor.

Samsung, the world's biggest technology firm by revenue, on Thursday (September 22) said the new line was the industry's largest and most advanced memory fabrication facility, producing chips with 20-nanometre class processing technology.

Lower line-widths processing technology allows more circuits on a chip, making them smaller, cheaper, more powerful and more energy efficient.

"We expect it will contribute to the growth of our semiconductor industry and our economy by launching the world's best product most rapidly," said Hong Wan-hoon, Executive Vice President of Memory Sales and Marketing at Samsung Electronics.

Hong and Samsung chairman Lee Kun-hee graced a ceremony celebrating the launch of the new memory chip line.

By 0355 GMT, shares in Samsung dropped 3.4 percent, versus a 3.3 percent drop in the broader market.

The line mainly makes NAND-type flash memory, widely used in mobile gadgets such as smartphones, digital music players and tablets.

Flash memory chips, also used in portable storage devices such as USB memory devices, are increasingly replacing hard drives in notebooks, as it has much faster boot times.

Samsung competes with Toshiba Corp in flash memory and local rival Hynix Semiconductor Inc, Japan's Elpida Memory Inc and Taiwan's Powerchip in dynamic random access memory (DRAM) chips.

Samsung expanded its global NAND market share by three percentage points to 41.6 percent in the second quarter, while Toshiba's share fell to 29 percent from 35 percent following the Japan earthquake in March.

Global NAND market is seen growing 21 percent this year to $23 billion, according to Citi analysts, as a strong 76 percent growth in shipment will more than offset an estimated price decline of 31 percent.

The production ceremony was attended by executives from Samsung's key clients including Sony.

Samsung said it has already started producing chips earlier this month from the line with a monthly output of some 10,000 twelve-inch wafers and plans to raise production rates further.

At full capacity, the new line can produce 200,000 wafers per month.

($1 = 1149.850 Korean won)