Samsung Electronics Seocho Building. /News1

Samsung Electronics expressed that opportunities and crises coexist in the context of the impact of the Chinese startup DeepSeek on memory semiconductor corporations. Artificial intelligence (AI) accelerator providers such as NVIDIA and AMD are spending significant expenses to purchase high bandwidth memory (HBM) from domestic memory companies like Samsung Electronics and SK hynix. Among these, the AI model released by DeepSeek is likely to become a short-term crisis factor for domestic semiconductor companies as it achieves high performance with low-cost HBM.

◇ DeepSeek utilizes products more than two generations behind cutting-edge HBM

Kim Jae-jun, vice president of Samsung Electronics' memory business division, said during the 2024 fourth-quarter earnings conference call on the 31st, "It is premature to assess (the impact of DeepSeek) with currently limited information, but we expect that short-term risk factors and long-term opportunity factors will coexist in the market." He added, "Since we are currently supplying HBM used in GPUs (graphics processing units) to various customers, we are monitoring industry trends with various scenarios in mind."

The reasoning AI model 'DeepSeek R1' recently unveiled by DeepSeek is reported to have used the downgraded H800 instead of NVIDIA's cutting-edge AI accelerator H100 due to U.S. sanctions. Nevertheless, it has surpassed some performance tests compared to the reasoning AI model 'o1' developed by OpenAI, which was released in September of last year, shocking the global IT industry.

While OpenAI has invested an expense of $100 million (approximately 145.5 billion won) in the latest ChatGPT development utilizing NVIDIA's GPUs, the expense invested by DeepSeek in developing R1 is merely $5.576 million (approximately 8.1 billion won), about one-twentieth of that amount. The relatively inexpensive GPUs used by DeepSeek, including the H800, are said to employ 3rd generation (HBM2E) or 4th generation (HBM3) products that are more than two generations behind cutting-edge HBM.

In response, Kim, noting the short-term risk factors alongside long-term opportunity factors, said, "The dynamics of the industry resulting from the introduction of new technologies always exist, and we are preparing to actively respond to the AI market." While there is a significant negative impact on the sales of cutting-edge HBM products at present, he mentioned that if more corporations like DeepSeek develop AI models using low-cost semiconductors, there is a possibility that the overall HBM demand in the market could increase in the long term.

Graphic=Jeong Seo-hee.

◇ Export controls on AI semiconductors... “HBM demand will decline in the first quarter”

It is projected that IT demand will not easily recover this year, and the expansion of the supply of high-value-added products such as HBM will determine the performance of Samsung Electronics' business. In the fourth quarter of last year, Samsung Electronics recorded an operating profit of 2.9 trillion won, which is lower than several previously revised forecasts and not even half of SK hynix's fourth-quarter operating profit of 8.8 trillion won.

However, Samsung Electronics expects HBM sales to decrease in the first quarter compared to the previous quarter. Vice President Kim stated, "Due to geopolitical issues such as U.S. export controls on semiconductors for AI, demand uncertainty is anticipated to increase beyond expectations, and there are also phenomena of demand delay due to the introduction of improved products." With the HBM revenue share declining and inventory adjustments from mobile and PC clients continuing, it is expected that they will not escape the tunnel of poor performance in the first quarter.

Nonetheless, Samsung Electronics forecasts that memory demand will begin to show signs of recovery starting in the second quarter. Vice President Kim added, "It is predicted that AI investments will continue throughout the industry this year, and the pace of inventory adjustments by customers is proceeding faster than market expectations." Especially in the case of NAND flash, it is anticipated that supply shortages will appear, as production cuts are expanding industry-wide, at least by early in the second half of this year.

In response to this, Samsung Electronics has repeatedly emphasized the strategy of 'accelerating the transition to advanced process technology.' This judgment stems from the belief that quickly transforming the business portfolio centering on high-value-added products is the only way forward. Samsung plans to increase the production share of products based on advanced processes, including HBM, DDR5, LPDDR5x, and GDDR7, and to accelerate the transition to the 9th generation 1 Tb (terabyte) TLC stacked up to 280-290 layers.