Samsung Electronics (005930.KS), which has posted unprecedented earnings this year on the back of a memory boom, has laid the groundwork for full-fledged growth in its foundry (contract chip manufacturing) business. Expectations are rising that the company will sustain its semiconductor rally for some time with a so-called "dual-engine system," in which both memory and foundry reliably drive earnings. The stock price has also surpassed 260,000 won for the first time ever, reflecting heightened market expectations.
According to industry sources and foreign media on Wednesday, Apple recently visited Samsung Electronics' Taylor fab in Texas to discuss cooperation on the production of advanced chips for its key devices, including the iPhone. The visit raises the prospect that Samsung's foundry division could take on production of application processors (APs, or brain chips) — core components of Apple devices such as the iPhone's A-series and the iPad and MacBook M-series.
Apple develops industry-leading APs in-house and, due to stringent technical requirements, has entrusted all production to industry leader TSMC. Should cooperation between the two companies materialize, Samsung Electronics could further strengthen the growth momentum of its foundry business by taking some volume from TSMC. Samsung's foundry unit had previously abandoned production of its own "Exynos 2023" chip in 2023 due to yield issues, but it has since been showcasing its technological capabilities again by responding to competition in adopting cutting-edge processes.
Samsung Electronics previously handled production of image sensors (CIS) for iPhones at its Austin fab. It has also won an order to produce Nvidia's newly unveiled AI chip, the "Grok 3 Language Processing Unit (LPU)," with mass production slated for the second half of the year. Last year, Samsung signed a 23 trillion won contract with Tesla to produce the "AI6" autonomous driving chip, in a series of order wins and collaborations with major global Big Tech firms.
In its recent first-quarter earnings announcement, Samsung Electronics said, "Foundry earnings declined due to seasonal weakness, but we are continuing to secure orders centered on the high-performance computing market." The company added, "Earnings improvement is expected in the second quarter as demand for advanced-process products increases, and in the second half we plan to drive double-digit revenue growth and profit improvement through mass production of new LPU products." Securities firms share a similar outlook. Mirae Asset Securities forecast that foundry and LSI revenue, which had shrunk to 26 trillion won last year, would rebound to 30.6 trillion won this year, while the operating loss would narrow from 7.6 trillion won to around 4.5 trillion won.
The memory business, the other pillar of the semiconductor (DS) division, is also showing solid growth. Despite a first-quarter loss in its foundry and LSI operations, Samsung Electronics achieved DS operating profit of 53.7 trillion won this year, led by memory. That is nearly 50 times the figure from the same period last year and more than double last year's annual operating profit. Leveraging its No. 1 competitiveness in the global DRAM market, Samsung significantly boosted sales of flagship products. In the high-bandwidth memory (HBM) market, it became the first in the industry to mass-produce and ship HBM4, the next-generation product for Nvidia's "Vera Rubin," and plans to sample HBM4E — next year's product — in the second half to secure market leadership.
The memory shortage is expected to continue into next year. In a recent conference call, Samsung Electronics said, "Customers concerned about supply shortages are submitting their memory demand for next year in advance," adding, "Based on the demand received so far alone, the gap between supply and demand next year will widen." The company said, "For the time being, we expect AI-related demand to drive growth momentum in the memory market." It is also pursuing supply share expansion through fab investments in Pyeongtaek and Taylor. Securities firms project that Samsung Electronics' annual operating profit this year will reach around 33 trillion won on the back of strong memory growth and improved foundry earnings.
The market is responding to these expectations. Samsung Electronics' stock rose 12.26% shortly after the open on Wednesday, surpassing 260,000 won for the first time ever. Kyobo Securities maintained a "buy" rating on Samsung Electronics and raised its target price to 330,000 won. Citing strong memory demand spreading to HBM and NAND, Kyobo Securities said, "Expanded shipments of 12-layer HBM4 and the transition to the 1c nanometer process are accelerating improvement in the product mix, while the expansion of long-term agreements (LTAs) and the full-scale rollout of HBM4 are simultaneously enhancing both earnings visibility and sustainability."
