Samsung is in dire need of this boost.
As reported, Tesla boss Elon Musk has just awarded Samsung Electronics a $16.5 billion contract over eight years to produce the next generation of custom AI chips for the electric car company. This is the largest deal the Korean conglomerate has ever signed with a single customer.
Samsung is in dire need of this boost. The company has disappointed for several quarters in a row, reminiscent of the “Sony shock” of the early 21st century. Samsung has fallen behind in high-bandwidth memory (HBM), a technology used by Nvidia and others to improve AI performance, leaving the field to domestic rival SK Hynix. Samsung’s foundry business is now “in the rearview mirror” of rival TSMC. Specifically, according to TrendForce data, TSMC has a 67.6% market share, far surpassing Samsung’s 7.7%.
The chip industry relies on a virtuous cycle: more customers, higher product quality, higher profits, more reinvestment, and so on. Unfortunately, Samsung’s foundry business is currently going in the opposite direction.
In particular, Samsung’s new Texas factory — one of the beneficiaries of former President Joe Biden’s Chip and Science Act — is at risk of becoming a “white elephant.” Investors, who had already pushed Samsung’s stock up by nearly a third this year on hopes of a recovery, added another 6.4% to the price on news of the Tesla deal.
But that seems a little premature. For an industry known for its big numbers, the eight-year deal is actually quite small: $2 billion a year on average, while Samsung is expected to generate $230 billion in revenue this year, according to S&P Capital IQ—that’s about three days of sales.
Next, it’s likely that Musk, who is limited to a small number of suppliers, is trying to keep them “on their toes.” Tesla had contracted TSMC to produce the previous generation of chips; the AI4 line was previously manufactured by Samsung. While the terms of the contract are not known, Tesla likely negotiated a good price. Samsung certainly has an incentive to offer attractive terms to take advantage of its factory with a lot of spare capacity. TSMC, meanwhile, is busier and has less reason to offer similar discounts.
In fact, even if it is not a “big profit” deal, Tesla still brings many other benefits: An “A-class brand” helps the factory attract more big customers, and a part of “management consulting” when Musk is expected to personally support optimizing production efficiency.
But the deal alone won’t be enough to revive Samsung. Its other businesses, like smartphones, are under pressure of their own. Its recent surge in share price, which is slightly above the broader index (in which Samsung is a heavyweight), has put its projected price-to-earnings ratio ahead of most of its rivals next year. Only by catching up to its rivals’ technology and winning back its big customers can Samsung get back on track.
News
Undaunted, Tiger Woods’ son Charlie makes a strong comeback at the Junior PGA Championship
Tiger Woods’ son Charlie immediately hits back after disastrous display in amateur tournament Charlie Woods missed the cut at the…
David Muir highlights Donald Trump’s increasingly clear statements about Epstein.
David Muir issues update on President Donald Trump amid Epstein file chaos ABC anchor David Muir highlights Donald Trump’s evolving…
Unlike other stars with hits, Blake Shelton shares why he’s ‘afraid’ of people covering his songs
Blake Shelton Explains Why He Hopes Nobody Will Ever Cover His Songs Throughout his career in country music, Blake Shelton produced 30…
Fans ‘froze’ as Ella Langley shows off her latest look with her pet dog
Fans Are Obsessed With Ella Langley’s Latest Look—but Even More Obsessed With Her New Puppy Ella Langley has a new…
Zac Brown’s ex-wife has spoken out about his engagement to his new girlfriend, and surprisingly…there were no gentle words at all!
Zac Brown’s Ex-Wife Finally Speaks Out After His Engagement to Kendra Scott Goes Public Well, that didn’t take long. Just…
Jimmy Buffett’s widow is suing co-manager Richard Mozenter for tampering with her husband’s estate.
Jimmy Buffett’s Widow Takes Legal Action Over Alleged Mishandling of $275 Million Estate When someone messes with the legacy of…
End of content
No more pages to load