Samsungs A.I. Moment Is Here, But Is It Ready?
The entry of ChatGPT has sent soaring shares of companies that produce microchips, the brains of artificial intelligence. They are betting on the potential of so-called creative AI. The most notable example of the rally is Silicon Valley-based Nvidia, a major vendor of chips used in artificial intelligence, whose shares have jumped nearly 200% this year.
South Korean giant Samsung Electronics is hoping to get in on the action. Best known for its consumer products, Samsung owns the world's largest memory chip business and also owns the largest semiconductor foundry, which produces custom chips for other companies.
Foreign investors bought $8 billion worth of Samsung shares on the South Korean stock market this year, Samsung's largest overseas purchase since 2000, according to data from Hong Kong-based investment firm CLSA. The increase offset sales over the previous three years, when foreign investors sold more shares in the company than they bought.
At an event in California last week, Samsung unveiled what it called its "vision for the age of AI." Samsung believes it can capture market share from major chipmaker Taiwan Semiconductor Manufacturing Company, but that trend has recently changed. According to Counterpoint Research, TSMC earns 60% of total revenue in the global foundry industry, while Samsung accounts for just 13%, a gap that has widened since 2021 when some Samsung customers, including Nvidia, transitioned the business to TSMC .
In the first quarter of this year, when profits fell 95%, Samsung said it spent $7.4 billion on chip manufacturing, some of which is expected to go to the AI industry. The company is expanding production at a chip manufacturing plant in Pyeongtaek, about 40 kilometers from Seoul, as well as a chip manufacturing plant in Texas. Samsung said it plans to work with the government over the next 20 years on a $230 billion plan to build a "megacluster" of chips in South Korea.
The optimism comes from Samsung's memory chip business, which accounts for half of the company's average annual operating profit, CLSA senior analyst Sanjeev Rana said.
Compared to traditional servers, the hardware that runs desktop computers and databases, servers designed for AI can require four times as much memory, called DRAM. Samsung holds about 45% of the global DRAM market. And it is the only major memory company in the industry that is investing in ramping up production despite declining memory prices, Rana added.
The chip industry is notorious for its boom and bust cycles. After a surge in demand for memory chips during last fall's pandemic, chipmakers embarked on one of the worst declines in years. Competitors to Samsung's memory chips, including US-based Micron Technology and South Korea's SK Hynix, said they would cut back on manufacturing investments this year.
Some analysts believe that Samsung's spending during the economic downturn will pay off in the long run as the memory industry recovers, also thanks to artificial intelligence.
"If order returns, they will be very happy," Rana said.
But skeptics wonder whether Samsung could play a role in creating artificial intelligence, as it does in smartphones and HDTVs. Last year, Nvidia chose SK Hynix to supply the powerful memory chip, which should be important for future AI servers.
SK Hynix controls 50 percent of this high-bandwidth memory, or HBM, market, compared to Samsung's 40 percent, according to research firm TrendForce. Shares of SK Hynix are up more than 50% this year, outpacing Samsung's 30% gain.
Samsung said it has already started shipping a competitive version of HBM to "major customers". He added that the next generation of HBM will be released this year.
Samsung's delay with HBM technology could be a sign of broader problems, said Nam Hyun Kim, an analyst at Arete Research. In a February report, Mr. Kim wrote that Micron had surpassed Samsung's technology in terms of DRAM and another type of memory, NAND flash.
"The problem with Samsung is that they always want to be big," Kim said. "They're spending so much money, but they're not the tech leaders anymore."
Mr. Kim said Samsung should invest more in research and not worry so much about market share. "Samsung is a bigger player in the smartphone market than Apple," he said. "But how many people think Samsung is a better smartphone than Apple?"
Samsung said in a statement that it has achieved success in various aspects of advanced semiconductor technology and is able to provide customers with "complete solutions" in the evolving world of artificial intelligence and other technologies.
Samsung executives have offered a more balanced diagnosis.
In May, Samsung's semiconductor division president, Kyung Kye-hyun, admitted to a college student that the company was "two years" behind TSMC. The remarks in Korean media were a rare accolade for a company that has long taken pride in its technology leadership.
Mr. Kyung has promised that Samsung's memory chips will be the "core" of AI supercomputers by 2028. "Within five years, we can surpass TSMC," he said.
Jin Yoo Young contributed to the report.
