Samsung is primed to seize AI chipmaking crown

It is getting easier to imagine Samsung Electronics (005930.KS) as a one-stop shop ready to service the coming artificial intelligence semiconductor boom. Losses at the South Korean giant’s memory chip unit are shrinking, earnings guidance released by the company on Tuesday suggests. The improvement ought to shift the focus to how the $390 billion conglomerate could soon gain an edge over AI-chip leader TSMC (2330.TW).

An industry glut of memory chips is reversing. Samsung’s operating profit in the three months to the end of December probably fell 35% year-on-year to 2.8 trillion won ($2.1 billion), an improvement from the 78% annual plunge in the previous quarter. That’s largely thanks to DRAM data-storage chips that are Samsung’s core profit driver. Supply cuts and improving demand for these are forecast to push average selling prices up by as much as 50% this year, Citi analysts estimate.

That puts Samsung on solid footing to make big advances in AI, where Taiwan’s TSMC leads in manufacturing cutting-edge logic chips – used to process data – for customers like the $1.3 trillion Nvidia (NVDA.O). The South Korean conglomerate led by scion Jay Y. Lee has long tried to diversify into manufacturing microprocessors but has largely failed to dent TSMC’s dominance.

That could change. AI applications require high-performance semiconductors that can handle massive amounts of data efficiently. The problem is, squeezing more transistors onto a single piece of silicon is getting costlier and harder. Hence packaging – a traditionally low-tech process which bundles chips together into a container – is becoming increasingly important for manufacturers making advanced semiconductors.

To this end, TSMC has pioneered technology which packages logic and memory chips close together, though the company primarily makes only the former type. Samsung is bulking up both its logic-chip manufacturing and packaging capabilities, too. Last year, it unveiled new technology, dubbed Samsung Advanced Interconnection Technology, or SAINT. Its 3D packaging stacks chips vertically on top of each other while TSMC’s 2.5D packaging puts them next to each other. Considerations like how far apart the chips are and what materials are used to connect them are vital.

Lee is betting that his company can produce both types of chips at scale for customers, as well as package them all together in a better, and perhaps cheaper, way. As oversupply worries fade, Samsung is freer to pursue a level of integration that could be a game changer.

Samsung Electronics on Jan. 9 announced sales in the three months to the end of December were probably 67 trillion won ($51.1 billion).

Operating profit probably fell 35% from a year earlier to 2.8 trillion won, the company added, lower than the 3.7 trillion won forecast from LSEG SmartEstimate.

Shares of Samsung were largely flat at 75,800 won during mid-morning time in Seoul on Jan. 9. The company is due to release detailed earnings on Jan. 31. Reuters