Global credit rating agency Standard & Poor's (S&P) raised Samsung Electronics' rating outlook to "positive" from "stable," reflecting an improvement in the memory chip industry on growing demand for artificial intelligence (AI).
According to the industry on the 22nd, S&P, in a report on the 21st, kept Samsung Electronics' long-term issuer credit rating at "AA-," short-term issuer credit rating at "A-1+," and senior unsecured note rating at "AA-," while lifting the outlook to positive.
S&P said, "The positive outlook reflects our view that Samsung Electronics will expand its market share in high bandwidth memory (HBM) and foundry through strengthened technological competitiveness amid the structural growth of the memory industry, and will maintain solid operating performance for at least the next two years."
S&P projected that Samsung Electronics, as the world's largest memory chipmaker, will be the biggest beneficiary of the current memory supercycle. It analyzed that memory prices continue to rise as demand driven by expanded AI data center investments meets limited supply. It found that prices for some DDR5 products are up three to four times from a year earlier.
S&P expected Samsung Electronics' annual revenue to hit an all-time high of about 683 trillion won this year and about 821 trillion won next year. It viewed that improved profitability in the memory business will offset cost pressures from higher component prices in the smartphone business.
S&P predicted the memory supply shortage will persist for at least two years. It said the 2028 capital expenditure of the four global hyperscalers will reach $1 trillion, four times the 2024 level, but that a material supply increase from new semiconductor production facilities will only appear after 2028.
It assessed that long-term agreements (LTAs) and the expansion of customized memory products are factors that reduce earnings volatility in the memory industry. With supply shortages continuing, clients are requesting long-term contracts of three to five years, and it analyzed that a higher share of customized products will also improve order visibility.
It also projected improved competitiveness in HBM and the foundry business. S&P judged that Samsung Electronics has secured technological competitiveness by applying 1c DRAM and a 4-nanometer (nm) base die to sixth-generation HBM (HBM4), and that it has largely resolved the Production yield issues experienced with fifth-generation HBM (HBM3E). For the foundry business, it said that as leading-edge process yields stabilize, Samsung Electronics could emerge as an alternative supplier if production capacity constraints at Taiwan's TSMC persist.
It expected Samsung Electronics' annual capital expenditures to increase from 52 trillion won last year to 81 trillion–84 trillion won this year and next year. S&P judged that despite increased investments, Samsung Electronics will maintain a solid net cash position and a prudent financial policy.
S&P said it could upgrade Samsung Electronics' credit rating if industry volatility eases through expanded long-term agreements and customized products, and if its HBM market position and net cash levels are maintained. Conversely, it added that if hyperscalers' AI investment declines and the memory market deteriorates sharply, or if market share falls significantly due to a loss of technological competitiveness, it could revise the outlook back to "stable."