In the second quarter of 2024, Samsung Electronics reported a significant increase in profits, driven by strong demand for AI-related memory chips. However, despite this overall success, the company’s foundry business continues to struggle with substantial losses. Reports indicate that Samsung’s foundry division is facing operating losses amounting to several trillion Korean won. The primary challenges include securing major clients and improving yield rates and technologies in advanced nodes.
Struggles in the Foundry Business
Samsung’s foundry business has been grappling with several issues that have contributed to its financial losses. One of the main challenges is the difficulty in securing major clients for its foundry services. Many big tech companies, including NVIDIA, AMD, Qualcomm, MediaTek, Apple, and Google, have been allocating their orders to TSMC, Samsung’s main competitor. This shift in client preference has significantly impacted Samsung’s market share and revenue.
Another critical issue is the need to improve yield rates and technologies in advanced nodes. Samsung has been focusing on developing its 3nm GAA (Gate-All-Around) technology, but the yield rates have not yet reached the desired levels. This has affected the company’s ability to attract and retain clients who require advanced semiconductor solutions. Additionally, the high costs associated with developing and implementing these technologies have further strained the foundry division’s finances.
Despite these challenges, Samsung is making efforts to turn the situation around. The company plans to introduce Backside Power Delivery Network (BSPDN) technology ahead of schedule to enhance product performance and competitiveness. By improving its technological capabilities and offering more competitive pricing, Samsung aims to increase its order volume and market share in the foundry business.
Impact on Financial Performance
The financial performance of Samsung’s foundry business has been a cause for concern, especially when compared to the company’s overall profitability. While Samsung reported a 23% year-on-year increase in revenue and a staggering 1,462% rise in operating profit for Q2 2024, the foundry division’s losses have cast a shadow over these impressive figures. The semiconductor giant did not disclose individual data for the foundry and LSI businesses, but reports suggest that the non-memory division suffered a loss of nearly 300 billion won during the quarter.
The foundry business’s financial struggles have been exacerbated by the competitive landscape. TSMC, Samsung’s primary rival, has been able to secure a larger share of the market due to its advanced technologies and higher yield rates. This has put additional pressure on Samsung to improve its offerings and regain its competitive edge. The company’s focus on high-performance computing (HPC) and other emerging sectors is part of its strategy to diversify its client base and reduce its reliance on the smartphone sector.
Despite the current challenges, there is optimism that Samsung’s foundry business can recover. The introduction of new technologies and the potential for increased demand in the HPC segment could help the company turn its fortunes around. However, it will require significant investment and strategic planning to achieve these goals.
Future Prospects and Strategic Initiatives
Looking ahead, Samsung has outlined several strategic initiatives to address the challenges faced by its foundry business. One of the key priorities is to improve the yield rates of its advanced node technologies, particularly the 3nm GAA process. By achieving higher yield rates, Samsung can offer more competitive pricing and attract a larger client base. The company is also focusing on the development of its 2nm process technology, with plans to begin mass production in 2025.
In addition to technological advancements, Samsung is exploring new market opportunities to diversify its revenue streams. The high-performance computing (HPC) segment is a key area of focus, as it offers significant growth potential. By shifting its focus from the smartphone sector to HPC, Samsung aims to tap into the increasing demand for advanced semiconductor solutions in this market. The introduction of BSPDN technology is expected to play a crucial role in enhancing the performance and competitiveness of Samsung’s products in the HPC segment.
Furthermore, Samsung is actively seeking to secure major clients for its foundry business. By building strong partnerships with leading tech companies, Samsung can increase its order volume and market share. The company’s efforts to improve its technological capabilities and offer competitive pricing are aimed at attracting and retaining these clients. If successful, these initiatives could help Samsung’s foundry business recover from its current financial struggles and achieve sustainable growth in the future.
