**‘Tesla Alliance’ Secures Rebound Momentum
Foundry and HBM4 as Decisive Factors for Reputation Recovery
Cost Efficiency Anticipated to Aid Recovery in Second Half
“Confident in Proving Competitiveness with Tesla Orders”**
Samsung Electronics reported an operating profit of 11.3 trillion won for the first half of this year, a sharp drop of approximately 6 trillion won from the 17 trillion won recorded in the first half of the previous year. The especially disappointing performance in the second quarter, which fell short of market expectations, was particularly notable.
The primary reason behind the decline in performance is attributed to the underperformance of the Device Solutions (DS) division, which oversees the semiconductor business. Semiconductor operating profit fell to 1.1 trillion won in the first quarter, and further plummeted below the 1 trillion won mark to 400 billion won in the second quarter.
The continued losses in the foundry (semiconductor contract manufacturing) business, alongside slow sales growth of high-bandwidth memory (HBM), are identified as major causes.
Additionally, the provision for inventory asset valuation affected by the U.S. sanctions blocking semiconductor exports to China added to the burden. This provision, encompassing both memory and non-memory sectors, is estimated at around 1 trillion won.
Industry forecasts anticipate a gradual rebound in Samsung Electronics’ operating profit in the second half. The resolution of one-time costs that previously tarnished the semiconductor business is paving the way for a visible recovery. The strong sales of the newly-launched Galaxy Z7 series foldable phone in the third quarter are also expected to drive profitability improvement.
Most notably, the factors expected to lead the change are the reduction in the foundry business’s losses and the shipment of samples of the 6th generation high-bandwidth memory, HBM4.
However, tariffs from the U.S. are seen as the biggest variable affecting the second half. With tariffs targeting semiconductor items anticipated in mid-next month, uncertainty over the entire business is expected to persist throughout the second half.
**“Diligently Preparing for Second Half Turnaround… Closely Monitoring Semiconductor Tariffs” =** On the 31st, during the second-quarter earnings conference call, Park Soon-cheol, Samsung Electronics’ Chief Financial Officer (CFO), stated, “We expect a rebound in the second half following the ‘bottom’ seen in the second quarter.” He emphasized, “The DS division is focusing company-wide efforts on restoring fundamental technological competitiveness.”
He added, “We are diligently preparing for a second-half turnaround by addressing inefficiencies, such as reflecting inventory asset provisions in the second quarter. We will continue to strengthen advanced semiconductor technology competitiveness and actively respond to demand for high-value-added and AI products.”
The financial investment sector estimates Samsung Electronics recorded an operating profit of approximately 3.3 trillion won through the DRAM business in the second quarter. However, a near 3 trillion won loss in the NAND business and non-memory sectors (foundry, system LSI) is anticipated, resulting in the semiconductor business’s total operating profit standing at 400 billion won.
Kim Jae-jun, Vice President of Samsung Electronics’ Memory Division, stated, “We expect strong server demand in the second half for both DRAM and NAND. PC and mobile sectors are also anticipated to benefit from seasonal demand and momentum from expanding on-device AI.”
Regarding the recent agreement between Korea and the U.S. on a mutual tariff rate of 15%, CFO Park stated, “We believe uncertainty has decreased. We are closely monitoring additional discussions between the two countries.” He mentioned, “We are closely observing the results of the U.S. Department of Commerce’s investigation under Section 232 of the Trade Expansion Act on semiconductors and semiconductor-related products, expected to be released in mid-August.”
Vice President Park added, “The investigation also includes finished products such as smartphones, tablets, PCs, and monitors, which could significantly impact our company’s business.”
**Foundry Loss Reduction and HBM4 Sample Shipment =** The semiconductor industry is closely watching the potential rebound strength of Samsung Electronics’ foundry business, set against the backdrop of a recent 22.8 trillion won AI chip supply contract with Tesla. Under the agreement, Samsung Electronics’ foundry will produce the AI chip ‘AI6’ using a 2-nano process over eight years until 2033 and supply it to Tesla.
Considering Samsung Electronics’ annual foundry sales were between 20 trillion and 21 trillion won last year, some express that this supply contract might not be significantly impactful on an annual basis.
However, expectations are that this order may signal a restoration of global client trust in Samsung Electronics’ foundry, which had been suffering from large-scale losses.
Samsung Electronics Foundry Division Senior Manager Noh Mi-jung emphasized that the recent Tesla order validated its advanced processing capabilities. She stated, “We expect additional large-scale client orders in the future, with stable operations expected at advanced nodes, including the U.S. Taylor plant, leading to possible expansion of sales and profits.”
Moreover, they announced plans to start full-scale operations at the new Taylor plant next year, targeting orders of advanced semiconductors from various U.S. clients.
Manager Noh further explained, “In the second half, we expect revenue improvement compared to the first half, with the mass production of new mobile products based on the first-generation 2-nano process.” She highlighted their focus on stabilizing the 2-nano process in advanced processes, while securing mass-production capability for automotive processes based on stable 4-nano demand.
In the HBM business, the entry into NVIDIA’s supply chain with the HBM3E 12-stack remains delayed.
Samsung Electronics is supplying the HBM3E 12-layer product to the latest AI accelerators by AMD in the U.S. However, securing a supply position with NVIDIA is deemed crucial for sales growth.
Attention is foremost focused on the HBM4 sample shipments in the second half. During the conference call, Samsung Electronics announced, “We have completed the development of HBM4 based on 1c nano and have delivered samples to customers. Compared to HBM3E, we have significantly improved performance and energy efficiency.”
By Hyunil Kim