Samsung Rises After Signalling Progress With Nvidia on AI Memory

Samsung Electronics Co. declared progress in supplying its most advanced AI memory chips to Nvidia Corp., offering some reassurance to investors who fear the company's falling further behind SK Hynix Inc. in a red-hot market.

Samsung's stock rose as much as 3.6% after an executive told analysts the company has made “meaningful” progress in key stages of the qualification process with a major customer, referring to Nvidia. The Korea company now expects to sell its highest-margin and most advanced HBM3E chips in the fourth quarter, Jaejune Kim, executive vice president of Samsung's memory business, said on an earnings call Thursday. SK Hynix's shares fell as much as 4.6%.

The once-dominant memory maker has struggled to get its latest chips certified by Nvidia for use with AI accelerators. That's provided an unusually long window for SK Hynix and Micron Technology Inc. to carve out commanding leads in the lucrative high-bandwidth memory arena.

South Korea's largest company has so far missed the lion's share of profits stemming from surging artificial intelligence-related demand. It also remains exposed to weak mobile chip sales, even as it faces rising supply of legacy chips in the China market. Demand for its smartphone chips are expected to stay weak next year, executives said.

“The key question is whether Samsung will be able to secure a meaningful market share from Nvidia even if it becomes another vendor after SK Hynix,” said Greg Roh, an analyst at Hyundai Motor Securities Co. “We have to wait and see.”

Profit at Samsung's mainstay semiconductor operations missed market expectations, reflecting the Korean tech leader's struggles to catch up in HBM and turn around its foundry business. Its semiconductor division — typically the biggest profit contributor — earned just 3.86 trillion won ($2.8 billion) in operating profit in the September quarter, shy of a 6.66 trillion won estimate.

That comes as SK Hynix posted a record operating profit of 7.03 trillion won last week with plans to supply its 12-layer HMB3E in the current quarter.

Samsung is now cutting production of its legacy memory in an effort to speed up conversion to cutting-edge manufacturing processes, Kim said. Its memory-related capital expenditures will prioritize high-end products, he said. Chip-related capital expenditures are expected to total 47.9 trillion won this year, and Samsung now expects to mass produce next-generation HBM4 chips in the second half of next year.

Samsung, which has lost about a quarter of its value this year, still reported net income of 9.78 trillion won, beating the analysts' average estimate of 9.14 trillion won, as other parts of the company's sprawling business helped offset its chip operations.

The earnings emerged three weeks after Jun Young-hyun, head of Samsung's chip business, apologized for disappointing results and acknowledged delays in winning certification for its most advanced lineup of chips. Samsung had predicted in July they would go into mass-production by the third quarter.

Samsung must now review its organizational culture and processes, Jun had said — echoing previous comments about the need for fundamental change at one of Korea's oldest companies. It's begun laying off workers in Southeast Asia, Australia and New Zealand as part of a plan to reduce global headcount by thousands of jobs, Bloomberg News reported.

What Bloomberg Intelligence Says Samsung Electronics' 2% sequential sales growth for 3Q, announced today, suggests that 4Q's sales growth could fall behind that of SK Hynix, which achieved 7% sequential sales growth in 3Q. SK Hynix could maintain its lead for a while, although Samsung will try to catch up on high-bandwidth memory (HBM) chips for artificial intelligence servers.

- Masahiro Wakasugi and Takumi Okano, analysts

Apart from lagging SK Hynix in HBM, Samsung's also shown little progress against Taiwan Semiconductor Manufacturing Co. in the outsourced production of custom-made chips. Full-year foundry capex is expected to decline from last year, the company said, although it has plans to update its mature production lines. Chipmakers are fighting to secure capacity at TSMC, the main chipmaker to both Apple Inc. and Nvidia.

The global foundry market is expected to grow by double-digits next year, Samsung said. The company aims to boost revenue by improving yields on its advanced lines, it said.

Despite difficulties at its semiconductor unit, Samsung's net income got a boost from the launch of its new smartphones, tablets and wearables, where its profitability rose despite high material costs. Samsung said it expects the overall smartphone market to grow sequentially in the current quarter and boost sales of its top-line products, although it expects growing competition in the mid-range segment to weigh on smartphone shipments and average selling price.

But the company sees more competition in the TV market, even as it attempts to reposition TVs as AI hubs in homes.

© 2024 Bloomberg LP

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