Last October, Jun Young-Hyung, head of Samsung's semiconductor division, took us by surprise. The executive took up his pen to write a letter of apology after a disappointing financial performance.

The South Koreans certainly don't do things the way everyone else does. 

But let's stay in the financial sphere. Samsung has been in trouble for several quarters now. And it's struggling to get back on track. Last quarter's results, published this week, were still below expectations. Even though the share price rose by over 3% on the day of publication. A sign that bad news is anticipated. With a 32% drop in 2024, the market has done the job.

Behind SK Hynix and TSMC

The South Korean giant, a conglomerate with a wide range of activities, is nevertheless a major player in the semiconductor sector. A sector that is benefiting from the rise of AI, even if not all companies are taking full advantage.

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 that has taken the lead in this segment. And its stock market performance has been the opposite: almost 50% growth by 2024.

Samsung is also a major player in the foundry sector. The business of producing chips designed by other companies (such as Nvidia or AMD). And in this foundry segment, TSMC is in pole position. Today, the Taiwanese company produces most of the most advanced chips, including Nvidia's GPUs and Apple's chips. The company's substantial profits enable it to finance titanic projects, such as the construction of three new factories in Arizona. A $65 billion project.

Consumer business still in crisis

Samsung is also a major player in several consumer segments. One is the Consumer Electronics (CE) division, which manufactures color TVs, monitors, printers, air conditioners, refrigerators and washing machines. And the Information Technology and Mobile Communications (IM) division, which manufactures computers and cell phones.

In all these activities, Samsung suffers from stiff competition. This is particularly true of TV sets, where it faces off against its compatriot LG. While Chinese brands, led by Huawei, are formidable in smartphones. More generally, Samsung's consumer markets are suffering from weak demand. This is particularly true of PCs and smartphones. After a boom during the Covid period, the backlash has been harsh. And recovery is still a long way off.

Salvation will come from AI

To become desirable again in the eyes of investors, Samsung now needs to catch up in AI. On the sidelines of the Consumer Electronics Show in Las Vegas, Jensen Huang, Nvidia boss and now market guru, indicated that the South Korean company had to rethink the design of its HBM chips. This is both a pressure tactic and an appeal to Samsung, whose memory chips generate more than half of the company's sales.

Nvidia probably doesn't want to be too dependent on SK Hynix for its HBM chip supplies. Indeed, the AI champion is well placed to know the consequences of dependence on a single supplier. This is the situation in which its customers find themselves. And which explains the stratospheric level of its margins.