Samsung Foundry Business Rebounds with AI Chip Deals

Samsung Electronics' foundry business is recovering, driven by AI chip projects and partnerships with tech giants like Nvidia. Recent gains with Tesla and potential orders from BYD and Apple highlight Samsung's growth strategy in the AI and tech sectors.

Samsung Electronics' foundry business, once ailing, is witnessing a turnaround marked by increased yields and notable AI chip projects, potentially signaling a return to profitability by the third quarter. The Korea Herald reports Samsung's integration of logic, memory, and packaging strengths is making strides in custom AI chip manufacturing amid tight capacity at TSMC, encouraging global tech clients to diversify suppliers.

In a strategic move, Samsung's co-CEO and chip executive Jun Young-hyun engaged with Nvidia's CEO Jensen Huang in Seoul to solidify cooperation between the two entities. Samsung's collaborations with Nvidia include production of autonomous driving chips and Groq AI accelerators using advanced 4-nanometer and 8-nanometer technology. Discussions are underway for future founding ventures.

As confirmed by Jensen Huang in March, Samsung is fabricating Nvidia's Groq LP30 chip and participating in production for Nvidia's Drive AGX Thor autonomous driving platform. The partnership reflects a renewed vigor in Samsung Foundry, which endured losses over the past five quarters. With deals like a USD 16.5 billion AI chip supply agreement with Tesla and anticipated orders for Apple image sensors, Samsung aims to revitalize its position in the semiconductor landscape.

The semiconductor titan's emerging HBM4 memory chip, built on Samsung's 4-nanometer process, is another growth driver for their foundry operations. Samsung's pursuit to secure deals with major automotive players, including BYD, for potential 2-nanometer and 4-nanometer foundry orders, underscores its strategy to expand its Chinese automotive customer expanse beyond Nio, which utilizes Samsung's 5-nanometer chips for autonomous driving.

Furthermore, Samsung's role as a strategic infrastructure partner in Anthropic's latest funding round alongside SK hynix and Micron positions it favorably in AI development. Although no definitive foundry orders have surfaced, Anthropic's reference to logic chips fuels expectations that Samsung may eventually handle production roles, further venturing into the AI domain.

Kim Rok-ho, a Hana Securities analyst, anticipates a normalization in Samsung's financial performance as shipments of Nvidia-specific Groq chips and HBM base dies rise, supported by a stabilized 4-nanometer process. This development, he suggests, could see the foundry business turning profitable by the year's second-half.

The positive customer momentum is critical for Samsung, whose foundry operations have historically faced skepticism over its capability to produce advanced chips competitively, considering its presence in memory, smartphone, and system chip markets. Recent contract victories indicate potential diminishing of such concerns as AI-driven demand prompts tech customers to seek varied manufacturing avenues.

The growth of Samsung's business is highlighted by advancements in its manufacturing processes; specifically, its 2nm gate-all-around process has achieved a yield rate of over 60 percent. Although not yet optimal for full mass production, it’s sufficient for initiating outputs and continuing discussions with clients. Samsung's quarterly financial disclosure noted that utilization rates at advanced process lines had peaked, contributing to double-digit revenue growth year-over-year despite seasonality.

Globally, Samsung faces a competitive landscape with TSMC dominating with a 73 percent market share in the pure-play foundry market, according to Counterpoint Research, compared to Samsung's 7 percent. Yet, strategic investments like the USD 37 billion facility in Taylor, Texas, poised to alleviate financial burdens through increased output, showcase Samsung's commitment to challenging its market position. Additionally, AMD's interest in a dual-foundry strategy could provide further prospects for Samsung's foundry growth.