Just a number of years in the past, Samsung Electronics stood as a number one drive in the world semiconductor race, dominating one chip sector and eyeing Taiwan’s TSMC in the battle for supremacy in one other.
But current stumbles – together with its failure to capitalize early on the synthetic intelligence growth – has left it outmaneuvered, consultants say, as the firm struggles with deepening market share losses.
Samsung’s second-quarter working profit plummeted 55% to 4.7 trillion received ($3.4 billion), down from 10.4 trillion received ($7.5 billion) a yr earlier, although its income elevated barely in contrast to the similar interval final yr.
Operating profit for its chip division, traditionally a money cow that used to account for two-thirds of its whole profit, shrank by practically 94% from April to June in contrast to a yr in the past.
On Tuesday, Samsung’s Korean shares slid practically 2% on the information earlier than paring some losses.
It blamed the worse-than-expected efficiency on stock worth changes, low utilization charge for its contract chipmaking enterprise and continued fallout from US export controls on superior AI chips to China – a key marketplace for Samsung.
Thursday’s disappointing earnings report reignites issues about the way forward for the embattled South Korean tech big.
Samsung warned traders of its dismal efficiency in its earnings projection earlier this month.
The outcomes come on the heels of a $16.5 billion cope with Tesla, introduced this week, to produce its new chips – a transfer anticipated to enhance Samsung’s outlook.
Looking forward for the second half the yr, Samsung stated it plans to proactively meet the rising demand for prime value-added and AI-driven merchandise and proceed to strengthen competitiveness in superior semiconductors.
South Korea’s largest conglomerate has run into vital headwinds in current years throughout each of its key income streams: the manufacturing of reminiscence chips, which assist gadgets retailer knowledge, and logic chips, which energy knowledge processing and computation.
Once the business’s main reminiscence chipmaker, Samsung has misplaced floor to rivals like South Korean SK Hynix and American Micron Technology, significantly in the fast-growing marketplace for high bandwidth memory (HBM) sector. HBM, made up of stacks of DRAM reminiscence chips (dynamic random entry reminiscence) used for short-term knowledge storage, are important for AI processors developed by corporations like Nvidia and AMD.
Meanwhile, Samsung’s logic semiconductor enterprise trails business chief TSMC each in cutting-edge chip applied sciences and market share.
In the first quarter of this yr, SK Hynix overtook Samsung to lead the global DRAM market, whereas TSMC extended its dominance in logic chips with a 68% market share, in contrast to simply 8% for Samsung, in accordance to market analysis agency TrendForce.
Sanjeev Rana, head of Korea analysis at CLSA, a brokerage agency, stated a collection of “missteps” by Samsung – most notably administration’s failure to anticipate the surge in AI demand – has contributed to its present struggles.
“They were slow to recognize the coming AI revolution, and they bet on some other products, other technologies, which, in hindsight, didn’t turn out to be very good bets,” he stated, explaining that Samsung missed the potential of HBM initially.
As a outcome, Samsung has to date missed out on being a provider for its most superior high-bandwidth reminiscence product to Nvidia, which accounts for practically 80% of worldwide HBM demand final yr, in accordance to Rana. The product has repeatedly failed Nvidia’s efficiency assessments, although he expects the firm to clear them in the subsequent two months.
While Samsung introduced in June that it managed to safe orders from AMD and Broadcom, rivals SK Hynix and Micron had already begun delivering samples of extra superior reminiscence chips to clients.
At the similar time, Samsung’s logic chip enterprise – as soon as central to its ambition to rival TSMC – can also be below mounting stress. Despite tens of billions of investments over the previous few years, the firm has been unable to safe significant orders for its superior chips, main to underutilized services, Rana stated.
Last yr, CLSA estimated that Samsung’s contract chipmaking enterprise posted an working lack of 5.6 trillion received ($4.1 billion). That determine is anticipated to rise to 6.6 trillion received ($4.8 billion) this yr.
US restrictions on the sale of superior chips to China have additionally taken a toll on Samsung’s income, as shipments to Chinese shoppers and tasks had been pressured to pause pending regulatory evaluate, stated Joanne Chiao, an analyst at TrendForce.
But with some chips now having cleared the evaluate course of, the second quarter is anticipated to be the most affected interval, she added.
Tesla supplied Samsung a lifeline this week. Its CEO Elon Musk introduced that the electrical car firm has tapped the Korean chipmaker to make its new chips for self-driving vehicles and humanoid robots in a $16.5 billion deal.
“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip,” he stated in a post on X. “Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress.”
Samsung’s shares surged greater than 6.9% to attain their highest degree since September following information of the deal.
Tesla presently sources its AI4 chips, which energy its superior driver help methods referred to as Full Self-Driving (FSD) software program, from Samsung, however it enlisted TSMC to produce its AI5 chips, in accordance to Musk.
The deal got here after Samsung postponed the operational begin of its chipmaking crops in Taylor, Texas to 2026 from its unique schedule of 2024, as it struggled to win clients for the undertaking.
Ray Wang, analysis director specializing in semiconductor business at Futurum Group, referred to as the cope with Tesla “significant,” saying it might enhance Samsung’s struggling profitability and validate its capabilities in producing superior chips.
The settlement may even assist enhance utilization of its Texas services, enhancing the firm’s return on funding, he added.
Rana stated that though mass manufacturing for the Tesla undertaking received’t start till 2027, the deal is a lift to market sentiment and represents “a big word of confidence.”
“The management has done a lot of restructuring for this business in the last 12-15 months or so, so I think they now understand what the problems were, and they have made some efforts to resolving those issues,” he stated. “Things will get better from the second half (of the year).”