Samsung Electronics has projected that global semiconductor shortages will persist through 2028, even as the company posted a dramatic surge in chip earnings driven by strong demand from artificial intelligence infrastructure. The South Korean technology giant also revealed it has secured long-term supply agreements with major global data centre operators in a move to lock in future demand.
The world's largest memory chipmaker reported that operating profit from its semiconductor division jumped by more than 250 times compared to the previous year, with the unit delivering a record 70 per cent operating profit margin. Despite the impressive results, investor sentiment remained cautious, reflecting growing concerns over the sustainability of AI-related spending. Samsung shares closed 0.7 per cent lower after initially climbing as much as 8.4 per cent, while rival SK Hynix ended the session down 5.6 per cent.
Analysts said the market is becoming increasingly cautious about the semiconductor sector despite its recent strong performance. "The chip narrative has weakened. Investors are questioning how long their record-high margins will be sustainable," said Kim Seok-hwan, a market analyst at Mirae Asset Securities.
Samsung disclosed that it has already signed multi-year supply agreements with the world's five largest data centre companies and is close to finalising similar deals with five other major customers, although it did not identify the firms. The agreements reflect growing efforts by major cloud providers to secure a steady supply of advanced memory chips amid rising AI demand.
Speaking during the company's earnings call, Executive Vice President of Samsung's memory business, Jaejune Kim, said demand for longer-term supply commitments has become widespread. "Almost all customers are requesting multi-year supply contracts," Kim told analysts. He added that Samsung aims to secure long-term agreements covering about two-thirds of its memory chip production to reduce its exposure to the industry's traditional boom-and-bust cycles.
Kim explained that the contracts will run for at least five years and are expected to include upfront payments and minimum pricing arrangements designed to protect both suppliers and customers from fluctuations in investment costs. The strategy mirrors similar efforts across the semiconductor industry as manufacturers seek greater stability in an increasingly capital-intensive market.
Samsung's optimistic outlook comes against the backdrop of a recent decline in global chip stocks, driven by investor concerns over the soaring cost of AI infrastructure and intensifying competition from Chinese technology companies. The caution has also been reinforced by weaker cash flow among leading technology firms, with Meta Platforms reporting a 91 per cent drop in second-quarter free cash flow, while Alphabet recently posted its first cash-flow-negative quarter.
A 250-Fold Profit Surge
Samsung Electronics delivered a record-breaking second-quarter performance, driven by soaring demand and higher prices for memory chips, with its semiconductor division posting an operating profit of 89.2 trillion won ($61.7 billion). The figure represents an increase of more than 250 times compared to the same period last year, helping lift the group's overall operating profit to 89.5 trillion won, in line with its earlier guidance.
The technology giant also reported a sharp rise in revenue, which climbed 130 per cent year-on-year to 171.5 trillion won. The strong performance underscores the continued boom in the global semiconductor market, as demand from major data centre operators and artificial intelligence infrastructure investments remains robust.
Despite the record gains in its chip business, Samsung's mobile division struggled during the quarter. Rising semiconductor prices increased production costs, pushing the smartphone unit into its first quarterly loss, with an operating deficit of 700 billion won.
Commenting on the mixed results, Josh Gilbert, an analyst at eToro, said the company's growing dependence on its semiconductor business could become a source of vulnerability. "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," he said.
The strong earnings also significantly strengthened Samsung's financial position. Quarterly profit exceeded the company's combined earnings over the previous three years, while its net cash position rose to 167 trillion won as of the end of June. The results have fuelled expectations that Samsung could reward shareholders with enhanced returns, even though its stock has fallen nearly 40 per cent over the past month. The shares, however, remain up 72 per cent since the start of the year.
Chief Financial Officer Park Soon-cheol said the company is considering measures to boost shareholder value. "We are in active discussion" over special dividends and other aspects of its shareholder return programme for this year, he said. Park added, "We remain fully committed to delivering on the program as promised and will provide for the update very soon."
Market analysts believe investor caution remains high despite the strong financial performance. Sanjeev Rana, Head of Research at CLSA Securities Korea, noted that uncertainty continues to weigh on sentiment. "Although the management did make some positive comments on shareholder returns and demand outlook, it seems due to high volatility investors are fleeing the market," he said.
Sharp Turnaround
Samsung Electronics says its latest earnings mark a significant recovery, as the company narrows the gap with rival SK Hynix in the fast-growing market for high-bandwidth memory (HBM) chips used in artificial intelligence processors.
The technology giant, which supplies HBM chips to major AI players including Nvidia and Advanced Micro Devices (AMD), expects revenue from its next-generation HBM4 products to more than triple in the third quarter. The company said the anticipated growth would help bring its share of the HBM market closer to its position in the broader dynamic random-access memory (DRAM) segment during the second half of the year.
The forecast reflects Samsung's efforts to strengthen its foothold in the AI semiconductor industry, where demand for advanced memory chips continues to accelerate amid rising investment in AI infrastructure.
Samsung also expressed optimism about its contract chip manufacturing business, which competes with industry leaders Taiwan Semiconductor Manufacturing Company (TSMC) and Intel. The company said the foundry unit is expected to recover "in the near future", citing improving factory utilisation rates and stronger chip pricing as key drivers.
In the United States, Samsung confirmed that preparations remain on schedule for the launch of operations at its semiconductor fabrication plant in Taylor, Texas, later this year. The facility is expected to play a strategic role in expanding the company's global manufacturing capacity.
Looking further ahead, Samsung said it intends to break ground on a second fabrication plant at the Texas site, with the new facility expected to begin mass production in 2030, reinforcing its long-term commitment to boosting chip output and supporting future demand. reuters.
