Samsung Electronics, the world's largest memory chip maker, announced plans to double production of memory chips for artificial intelligence (AI) as competition heats up between the company and its rival SK Hynix.
While SK Hynix managed to turn a profit in its semiconductor business in the third quarter, Samsung's semiconductor business posted a 3.75 trillion won ($2.78 billion) operating loss during the same period.
Samsung is aiming to regain lost ground by producing more high bandwidth memory (HBM) chips, which power generative AI systems such as OpenAI's ChatGPT. SK Hynix is currently leading the HBM chip market by supplying its HBM3 chips to tech giant Nvidia.
"Samsung's pride as the world's top dynamic random access memory (DRAM) chip maker has taken a hit this year, and the company is looking to focus on high-end DRAM memory chips and HBM chips to increase profitability in the fourth quarter," said a source close to the company.
The company reported on Tuesday that operating profits in the three months to September dropped 77.6 percent from a year ago to 2.43 trillion won ($1.8 billion). Revenue fell 12.21 percent to 67.4 trillion won during the same period.
Losses in Samsung's semiconductor division, which amounted to 9 trillion won in the first half of the year, narrowed to 3.75 trillion won in the third quarter amid a slow recovery in demand.
"We will continue to expand production of cutting-edge memory chips, including next-generation DRAM and 7th and 8th generation V-NAND," said Kim Jae-jun, vice president of Samsung Electronics memory division.
Analysts say that SK Hynix's semiconductor division succeeded in returning to profitability ahead of Samsung because SK Hynix took the lead in developing and supplying DDR5 DRAM memory chips in the global market. Sales of the company's HBM chips also increased in the third quarter.
"Profit margins for HBM chips are typically five to six times higher than DRAM chips," said an industry insider.
Samsung expects demand for HBM chips used in AI processors will continue to grow and plans to more than double HBM production in 2024. "We have already completed supply discussions with major customers for these volumes," said Kim. "Mass production of HBM3 began in the third quarter, and we expect sales to grow in the first half of next year."
Samsung said it will also begin mass production of next-generation HBM3E chips in the first half of 2024.
The company expects the memory chip market to recover next year as production cuts by chipmakers come into effect. "We have received purchase inquiries from customers seeking to secure components based on the awareness that the memory chip industry is bottoming out," said Kim.
He also added that the year-long supply gut is drawing to an end, as demand for memory chips is expected to rebound amid continued production cuts in the fourth quarter. "Considering the normalization of inventory levels, we expect market recovery to accelerate in PC and mobile memory," he said.
This article was originally published on Oct. 31, 2023.