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Samsung Electronics was well-positioned to benefit from the rise of artificial intelligence because it was once the leading manufacturer of memory, a type of semiconductor.
But the South Korean electronics giant has now fallen behind its long-time rival SK Hynix in next-generation chips that have been key components for AI silicon leader Nvidia. The outcome? Samsung’s profit has plunged; around $126 billion has been wiped off its market value, according to data from S&P Capital IQ, and an executive issued a rare public apology about the company’s recent financial performance.
A crucial kind of chip for data storage, memory is present in many gadgets, including laptops and smartphones. For years, Samsung was the undeniable leader in this technology, ahead of South Korean rival SK Hynix and U.S. competitor Micron.
However, as AI apps like OpenAI’s ChatGPT gained traction, more attention was paid to the underlying infrastructure needed to train the massive models they rely on. With its graphics processing units (GPUs), which are now the industry standard for AI training by tech behemoths, Nvidia has become the dominant force in this field.
A crucial part of that semiconductor architecture is high-bandwidth memory, or HBM. Prior to the AI boom, this next generation of memory, which consists of stacking multiple dynamic random access memory (DRAM) chips, had a small market.
Samsung was caught off guard and decided not to invest there.
“Samsung has not dedicated its resources to the development of HBM, which has been a very niche product for a long time,” Kazunori Ito, director of equity research at Morningstar, emailed CNBC.
“It was thought that the high development costs were not warranted due to the small addressable market and the complexity of the technology involved in stacking DRAMs.”
SK Hynix recognised this chance. The company aggressively launched HBM chips which were approved for use in Nvidia architecture and, in the process, the South Korean firm established a close relationship with the U.S. giant. Nvidia’s CEO even asked the company to speed up supply of its next generation chip, underscoring the importance of HBM to its products.
SK Hynix posted record quarterly operating profit in the September quarter.
Brady Wang, an associate director at Counterpoint Research, emailed CNBC to say, “SK Hynix maintains an edge in both HBM innovation and market penetration with strong R&D (research and development) investments and established industry partnerships.”
Samsung told CNBC that, in the third quarter, total HBM sales grew more than 70% quarter-on-quarter. “The current product, known as HBM3E, is in mass production and generating sales,” the tech giant added.
The next-generation HBM4 is “underway according to plan” in terms of development, according to the South Korean tech company, which plans to begin “mass production” in the second half of 2025.
Is it possible for Samsung to return?
According to analysts, Samsung is falling behind rivals for several reasons, such as its lack of a first-mover status and its underinvestment in HBM.
According to Ito of Morningstar, “it is fair to say that Samsung has not been able to close the gap with SK Hynix on the HBM development roadmap.”
It seems that Nvidia and Samsung’s potential for a short-term recovery are closely related.
A company must pass a strict qualification process before Nvidia approves it as a HBM supplier, and Samsung has not yet completed this verification. However, analysts believe that if Nvidia gives its approval, Samsung may be able to resume its growth and more successfully compete with SK Hynix.
“Since NVIDIA controls over 90% of the market for AI chips, which are used in the majority of HBMs, Samsung needs NVIDIA’s approval in order to capitalise on the strong demand for AI servers,” Ito stated.
According to a Samsung representative, the business has “completed an important phase in the qualification process” and made “meaning progress” with regard to HBM3E.
According to the spokesperson, “We expect to start expanding sales in the fourth quarter,”
In the meantime, Wang pointed out that Samsung’s R&D capabilities and semiconductor manufacturing capabilities could enable the company to overtake SK Hynix.