After a fall of 32% in 2024, Samsung is under pressure from the markets. The South Korean giant seems to be left behind in the race for AI, while its consumer activities do not benefit from strong growth dynamics. But salvation may come from Nvidia.
Last October, Jun Young-Hyung, head of Samsung’s semiconductor division, surprised us. The manager had in fact taken up his pen to write a letter of apology after disappointing financial performances.
Clearly, South Koreans don’t do anything like everyone else. A business leader publishes a letter of apology and a president is dismissed at the end of an anthology political sequence that would almost make France seem like a politically stable country.
But let’s stay in the financial field. Samsung has indeed been in difficulty for several quarters. And it’s hard to get things back on track. The results for the last quarter, published this week, were still below expectations. Even if the title rose by more than 3% on the day of publication. A sign that bad news is anticipated. With a 32% decline in 2024, the market has done the job.
Behind SK Hynix and TSMC
The South Korean giant, a conglomerate with diverse activities, is nevertheless a major player in semiconductors. A sector that benefits from the rise of AI, even if not all companies take full advantage of it.
This is the case of Samsung which seems to be losing the technological race. The group is present in several segments of the semiconductor industry. First, it designs and produces high-bandwidth memory chips (HBM). But it is now its compatriot SK Hynix which has taken leadership in this segment. And which is experiencing a stock market trajectory that is the opposite: almost 50% growth in 2024.
Samsung is also an important player in the foundry sector. The activity of producing chips designed by other companies (like Nvidia or AMD for example). And in this foundry segment, it is TSMC which is in pole position. The Taiwanese now produces most of the most advanced chips, including Nvidia GPUs and Apple chips. Enough to generate significant profits which make it possible to finance titanic projects, such as the construction of three new factories in Arizona. A 65 billion dollar project.
-General public activities still in crisis
Samsung is also a major player in several consumer segments. On the one hand, the Consumer Electronics (CE) division which manufactures color televisions, monitors, printers, air conditioners, refrigerators, and even washing machines. And on the other hand the information technology and mobile communications (IM) division which notably manufactures computers and mobile phones.
In all these activities, Samsung suffers from strong competition. This is true for televisions, where it faces compatriot LG. While Chinese brands, Huawei in the lead, are formidable on smartphones. More generally, Samsung’s consumer markets are suffering from weak demand. This is particularly the case for PCs and smartphones. After a boom during the Covid period, the backlash was severe. And the recovery is still awaited.
Salvation will come from AI
To become desirable again in the eyes of investors, Samsung must now catch up on AI. On the sidelines of the Consumer Electronics Show in Las Vegas, Jensen Huang, boss of Nvidia and now market guru, indicated that the South Korean company had to review the design of its HBM chips. A blow of pressure at the same time as a call on Samsung, whose memory chips generate more than half of the turnover.
Nvidia probably does not want to be too dependent on SK Hynix for its supplies of HBM chips. The AI champion is indeed well placed to know the consequences of dependence on a single supplier. This is the situation his clients are in. And which explains the stratospheric level of its margins.
