'Absolutely formidable': Analyst names her top chipmaker and explains why it has the edge

Published Mon, Aug 28 20238:39 PM EDT

South Korean giant Samsung Electronics has an edge over other semiconductor companies, according to Hannah Gooch-Peters of asset management firm Sanlam Investments UK. That's because it has lots of cash and a diversified business, the global equity investment analyst told CNBC Pro Talks last week. Semiconductor firms have "to massively invest," Gooch-Peters said. "The way that Samsung basically creates its barriers to entry is absolutely formidable in terms of the amount it's able to invest to, to grow and build out this, in particular, foundry business, where it's competing with Taiwan Semiconductor," she said, referring to TSMC. But Samsung stands out for being cash-rich, she said. "Samsung's actually got $74 billion of net cash on its balance sheet, and so while other semiconductor companies are perhaps worried about how much they're able to invest, to be able to outspend their competitors and grow, to beat the other competition in the market, Samsung are not worried about that … that's part of what creates its edge there," she said. Samsung's businesses Samsung is known for making consumer electronics — and it's also the world's biggest maker of memory chips, which go into devices such as laptops and servers, including artificial intelligence servers. Samsung produces dynamic random access memory chips and NAND chips. Apart from the memory chip business, it's doubling down on its foundry business that makes custom chips for massive customers like Qualcomm , Tesla , Intel and Sony , as well as thousands of smaller players. The foundry business, which is a "very specialized business," and the company's "massive" amount of capital, are what's giving Samsung an edge, Gooch-Peters said. "So what we're seeing there is heavy investment in that part of the business, but we think that the long term sort of growth trajectory is really exciting. And you know … if you've got generative AI you need these memory chips to be able to use it," she added. But the South Korean giant doesn't just rely on its memory chips. It also has its very stable smartphone business, Gooch-Peters said. "It's much more stable business, it's much lower margins … but that stability does help … diversify the revenues and you know, they are one of the big leaders on that," She said. "So I think it's very sort of nice and complementary to the more volatile, more cyclical, sort of semiconductor side of the business." How to invest in Samsung For those looking to directly invest in Samsung, its shares are listed on the Korea Exchange, the London Stock Exchange and its preferred shares are listed on the Luxembourg Stock Exchange. ETFs with Samsung among their top holdings include iShares MSCI South Korea ETF (22.1%), BetaShares Asia Technology Tigers ETF (12.4%) and iShares Asia 50 ETF (11.5%). Sanlam's $5 billion-plus Global High Quality Fund has a position in Samsung, which takes up 4.1% of the fund. That fund invests in global stocks with a "high quality bias." They include companies with high return on capital, low debt, and a "sustainable competitive advantage" that produces significant free cash flow. It beat the broader market by 9% in 2022, according to Gooch-Peters.