Samsung sees chip shortage extending to 2028, signs long-term supply deals

Highlights:

• Surging memory chip prices benefit Samsung, but hurt phone division
• Chip profit 89 trln won, up over 250-fold
• Mobile division swings to loss for the first time
• Samsung shares rise as much as 8%

Samsung Electronics said on Thursday it expects chip shortages to worsen and extend into 2028, after it posted a more than 250-fold jump in chip profit, countering investor concerns that feverish AI spending by major technology firms may slow and curb growth.

Shares in the world's top memory chipmaker surged as much as 8% before trading down 1.1% on Thursday.

"The supply shortage in 2027 is expected to worsen compared to this year, and it is expected to continue in 2028," Jaejune Kim, executive vice president of Samsung's memory business, told analysts on a call.

He said Samsung has signed long-term supply agreements with the top five global data centre firms and is nearing deals with five other large companies, without disclosing their names.

He said its long-term deals would last at least five years and account for 60% to 70% of its total capacity for the longer term, adding that they included upfront payments and floor pricing aimed at hedging the risks of its capital investments.

"Management's commentary on the conference call was better than expected, and it was one of the more reassuring calls we've heard in quite some time," said Ryu Young-ho, a senior analyst at NH Investment & Securities.

Samsung's bullish view follows a sharp slide in chip stocks in recent months due to investor concerns about funding for the AI infrastructure buildout and competition from China that could put chip earnings under pressure.

Samsung's semiconductor division posted an operating profit of 89.2 trillion won ($61.7 billion) in the second quarter, up over 250-fold from a year earlier.

However, those surging chip prices hurt the company's mobile division, which reported a 700 billion won loss, its first quarter in the red.

"The chips enriching one side of Samsung are now hurting the other, leaving the group more exposed than ever to memory pricing and the durability of hyperscaler demand," said Josh Gilbert, an analyst at eToro.

HBM revenue growth picks up

The second-quarter profit, which surpassed Samsung's combined earnings over the past three years, marks a sharp turnaround as it races to catch up with Korean rival SK Hynix in supplying high bandwidth memory (HBM) chips used in AI processors.

Samsung, which counts Nvidia and Advanced Micro Devices among its HBM customers, said it expects HBM4 revenue to more than triple in the third quarter. It added that this would help bring its HBM market share in line with its overall dynamic random access memory (DRAM) chip market share in the second half.

Samsung said its foundry business, which competes with TSMC and Intel, is expected to turn around "in the near future" driven by rising factory utilisation rates and chip prices.

It said it is on track to start operations at its Taylor fabrication plant in Texas this year and aims to break ground on a second fab, which could start mass production in 2030.

Samsung reported operating profit of 89.5 trillion won ($61.98 billion) for the 1 April to 30 June period, in line with its estimate of 89.4 trillion won and up from 4.68 trillion won a year earlier.

The South Korean company's revenue rose 130% to 171.5 trillion won in the quarter from a year earlier.

Samsung's cross-town rival SK Hynix on Wednesday reported bumper quarterly results but fell short of lofty investor expectations. It flagged plans to raise capital spending this year by around 50% to meet surging AI demand.

Samsung is not considering issuing American depositary receipts (ADRs) following SK Hynix's US market debut earlier this month, CFO Park Soon-cheol said on the earnings call.

He said Samsung saw little need to raise fresh funds given the stable cash generation from its diversified business portfolio.