Samsung Electronics recorded an 'earnings shock' in the second quarter of this year due to the underperformance of its high bandwidth memory (HBM) business and losses in its foundry (semiconductor contract manufacturing) division. However, with the foundry division securing a new large contract worth approximately 23 trillion won and shipping samples of the next-generation HBM4 (6th generation HBM) to clients, there are evaluations that it has laid the groundwork for recovery. As the quality tests have passed in the HBM business, which had hampered the semiconductor division's (DS) performance, expectations for further orders from foundry clients are rising, suggesting an acceleration in performance improvement.
Samsung Electronics announced on the 31st that its consolidated revenue for the second quarter of this year reached 74.5663 trillion won, and its operating profit was 4.6761 trillion won. Compared to the same period last year, revenue increased by 0.6%, while operating profit decreased by 55.23%. The poor results from the HBM business and significant losses in the foundry division hindered performance improvement.
Park Soon-cheol, Chief Financial Officer (CFO) of Samsung Electronics, noted, "Although there are concerns about a global slowdown in growth due to uncertainties in the global trade environment and geopolitical risks, the IT market is expected to improve centered around AI and robotics," and he explained, "I expect Samsung Electronics' performance to rebound in the second half with a 'U-shaped' recovery after hitting a low in the second quarter."
◇ Recovery 'signal' from large 2-nanometer foundry contract… "Expectations for additional clients"
In the second quarter, the foundry division recorded significant deficits, but on the 28th, it announced a large order contract worth 22.7657 trillion won with Tesla, providing a foothold for recovery. Samsung Electronics will mass-produce Tesla's next-generation artificial intelligence (AI) chips through its 2-nanometer process at its fab in Taylor, Texas. Elon Musk, CEO of Tesla, mentioned that "the order size of $16.5 billion is the minimum amount, and the actual figure could be several times more," hinting at the possibility of additional contracts.
While achieving a short-term profit shift from this contract alone is difficult, there are analyses suggesting that securing a 'reference' in advanced processes will serve as a springboard for additional orders. Baek Gil-hyun from Yuanta Securities Korea stated, "An improvement in foundry utilization rates centering on Samsung Electronics' U.S. fabs is expected," and added, "The fact that visibility for the foundry business has emerged based on the reference is positive."
Samsung Electronics also stated that it will accelerate the acquisition of additional clientele by strengthening its 2-nanometer technology. Samsung Electronics explained, "We have completed the reliability evaluation of the 2-nanometer first generation process and have proceeded with mass production preparations without issues," and said, "Having secured orders for 2-nanometer production products from Tesla, we expect to gain additional large clients from this point. The U.S. Taylor factory is expected to be fully operational next year."
◇ "Samples shipped to major customers for HBM4"… HBM3E (5th generation HBM) revenue share also expanding
Samsung Electronics is aiming for a rebound in the HBM business, which had recorded poor results. While its competitor SK hynix has solidified its position as the largest supplier to NVIDIA, a major player in the HBM market, and is breaking its own quarterly records, Samsung Electronics failed to pass NVIDIA's quality tests. However, with the possibility of passing quality tests for HBM3E and HBM4 being raised, there are expectations that it could recover from its underwhelming results.
In particular, analyses suggest that improvements in the yield of the 10-nanometer 6th generation (1c) DRAM process integrated into HBM4 will accelerate the recovery of competitiveness. Samsung Electronics adopted a strategy to enhance performance by utilizing a generation-ahead DRAM compared to SK hynix, which employs 10-nanometer 5th generation (1b) DRAM in HBM4. Samsung Electronics explained, "Having completed the development of HBM4, we have already shipped samples to major clients," adding, "We plan to continue expanding investments in the 1c process facilities in preparation for an increase in demand for HBM4 next year."
Park Yoo-ak, a researcher at Kiwoom Securities, stated, "In the case of DRAM, it seems that the yield of 1c DRAM products has significantly improved, and the quality of HBM4 shows better-than-expected results," adding, "As the post-processing yield of HBM has also significantly improved, there are signs that the problems that have troubled Samsung Electronics in the past are being resolved."
Samsung Electronics explained that demand for HBM3E is also expanding significantly, which will contribute to profitability improvement. Samsung Electronics noted, "The share of HBM3E in the total quantity of HBM has increased to the high 80% range," adding, "Gradually, we are securing ongoing demand along with completion of mass production approvals for each client. The revenue share of HBM3E in the second half is expected to be in the high 90% range."