Samsung Electronics recorded an operating profit significantly below market expectations in the second quarter of this year, with the failure of the high bandwidth memory (HBM) business being the main cause, raising doubts about the possibility of a rebound in the foundry business.
In particular, after the fourth generation of HBM (HBM3), Samsung Electronics has failed to deliver notable results in all generations of HBM products, ceding market leadership to SK hynix and Micron. According to comprehensive analysis from domestic securities firms, Samsung Electronics' memory division recorded approximately 3 trillion won in operating profit while the foundry and system LSI divisions incurred an estimated loss of about 2.5 trillion won. Considering that SK hynix's operating profit for the second quarter is expected to be around 9 trillion won, there is a threefold gap in memory business profitability.
◇ HBM business strategy, a complete failure… "DS operating profit did not exceed 1 trillion won"
Samsung Electronics announced on the 8th that it recorded 74 trillion won in revenue and 4.6 trillion won in operating profit for the second quarter of this year. This represents a decrease of 0.1% and 55.9% in revenue and operating profit, respectively, compared to the second quarter of last year. The operating profit significantly fell short of the already lowered market expectations of 6.3 trillion won. The securities market had sharply lowered its expectations for Samsung Electronics' second quarter operating profit by around 2 trillion won over the past month, but the actual results were even worse.
Domestic major securities firms believe that the biggest cause of Samsung Electronics' poor performance in the second quarter is the failure of its HBM business strategy. In particular, despite aggressively pushing for the supply of the cutting-edge fifth generation HBM (HBM3E) and strengthening production capacity and investments, the outcomes have been disappointing. Supply to NVIDIA, a 'big player' in the artificial intelligence (AI) industry, has been delayed, which appears to have reflected a decrease in revenue and an increase in inventory expenses.
Kim Sun-woo, a researcher at MERITZ Securities, noted, "Although the smartphone business performed well in the second quarter, the decrease in HBM revenue, the lagging accounting of advanced process expenses, and the decrease in foundry utilization affected the semiconductor results severely," estimating the semiconductor division's operating profit to be around 400 billion won. He explained, "HBM is expected to have recorded disappointing shipments of 500 to 600 million gigabits, and the lagging expenses from the ambitious production plans that have been ongoing since last year appear to have been reflected this year."
Chae Min-sook, a researcher at Korea Investment & Securities, stated, "The certification for major HBM clients has been delayed until the end of the third quarter, making it inevitable to adjust downward the second quarter revenue and operating profit estimates for Samsung Electronics' HBM." The outlook for HBM in the second half of the year is equally unclear. He remarked, "While Samsung is certifying HBM3E 12-layer, competitors SK hynix and Micron are aiming for the certification of the next-generation product, HBM4 12-layer," adding, "Entering as a third supplier is not a favorable situation for Samsung."
Despite active production cut efforts, the NAND flash business, which was expected to return to profitability, continues to incur losses. Most domestic securities firms speculate that Samsung Electronics suffered a loss of over 300 billion won in its NAND flash business in the second quarter. Competitors are increasing their share of high-value products in the enterprise SSD (solid-state drive) market to offset losses in general NAND, while Samsung still heavily relies on demand in the general NAND market.
According to analysis from domestic securities firms, the system LSI division and the foundry division, which recorded a loss of over 2 trillion won in the first quarter, have also reportedly increased their loss scale. MERITZ Securities estimates the combined loss of these two divisions to be 2.3 trillion won, while DS Investment & Securities expects that the foundry division alone incurred a loss exceeding 2.1 trillion won. Although substantial orders have been secured from some older process lines, including for the Nintendo Switch 2, there are still significant challenges in securing clients in advanced processes such as 3 and 5 nanometers.
◇ Outlook for the second half of the year is bleak… "The gap with SK hynix and Micron in HBM will widen"
The second half of this year is also expected to make it difficult to establish a significant turnaround. The certification for NVIDIA's HBM3E 12-layer product, which was originally expected in the second quarter, has been postponed until the end of the third quarter, and the next-generation product, HBM4, is also experiencing delays in the certification process compared to competitors. While Samsung Electronics aims to turn the tide with HBM4 based on 6th generation (d1c) technology, researcher Chae Min-sook delineated, "It is still too early to confirm the competitiveness of the HBM4 based on 1c."
An industry insider noted, "Since the entry point of HBM3E, Samsung Electronics has shown significantly lower revenue market share compared to SK hynix and Micron and is struggling with the crucial supply to NVIDIA," pointing out that, "The fact that NVIDIA's certification, scheduled for the second quarter, was postponed to the end of the third quarter is essentially evidence that Samsung's HBM business, which has been stagnant for over a year, will find it difficult to catch up with front-runners SK hynix and Micron."
The foundry division is also facing challenges, with all of the volumes for the cutting-edge 3-nanometer process heading to Taiwan's TSMC. The division is betting its life on securing clients for 2-nanometer by the end of the year, but immediate performance recovery appears unlikely. Currently, while TSMC has secured a yield of over 60% for its 2-nanometer process, Samsung Electronics remains at around 30-40%, and industry analysts highlight that potential variables could arise if large-scale mass production begins.
The situation in the DRAM market, the largest revenue source, is also challenging. Lee Soo-rim, a researcher at DS Investment & Securities, said, "While the DRAM price trend is expected to remain firm until the third quarter, there exists the possibility of price adjustments in the fourth quarter," adding, "As the lifespan of DDR4 DRAM comes to an end, inventory accumulation demand and the impact from tariffs are positive factors, but as the price premium for DDR5 DRAM shrinks, price corrections are anticipated."
Samsung Electronics plans to seek a turnaround in the DRAM and HBM markets by mass-producing the 6th generation DRAM based on 10-nanometer technology in the second half of this year. Son In-jun, a researcher at Heungkuk Securities, commented, "While the completion of the 10-nanometer 6th generation DRAM development is positive news, it should be noted that just completing the process development does not guarantee the yield and quality assurance in the subsequent mass production process," further explaining that, "Confirmation of recovery in technological competitiveness is expected to be possible after the third quarter."