Samsung admits HBM is not as good as expected

Latest update time：2024-10-11

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Samsung Electronics has lowered its HBM (High Bandwidth Memory) maximum production capacity (CAPA) target from 200,000 units per month to 170,000 units per month by the end of next year. Given the reality that mass production supply to major customers has been delayed, the cutting-edge HBM seems to have taken a conservative approach to its equipment investment plan.

According to industry insiders on the 10th, Samsung Electronics plans to lower its HBM maximum production capacity target by more than 10%, and recently decided to expand production capacity before the end of next year.

HBM is a next-generation memory that stacks multiple DRAMs vertically and connects them through TSVs (through silicon electrodes). To expand HBM production capacity, advanced packaging facilities including this TSV are required.

Until the second quarter of last year, Samsung Electronics planned to increase HBM production capacity to 140,000 to 150,000 wafers per month by the end of this year and to 200,000 wafers per month by the end of next year. The result reflects the response strategy of major competitors such as SK Hynix to increase HBM production, as well as the positive outlook that quality testing of major customers such as NVIDIA will be completed soon.

But the situation changed in the second half of this year. As the latest generation of HBM3E (fifth-generation HBM) 8-layer and 12-layer products passed NVIDIA's quality test later than expected, Samsung Electronics conservatively adjusted its HBM production plan at the end of this year.

HBM's facility investment also remains stable to reflect the current situation. It is understood that HBM's production capacity target has been reduced from 200,000 units/month to 170,000 units/month by the end of next year, and the reduction of 30,000 units per month has been changed to later investment.

In terms of production capacity, HBM production capacity will be reduced from the later 13 billion Gb (gigabit) level to 12 billion Gb by the end of next year.

A person familiar with the matter explained, "I understand that Samsung Electronics has decided to slow down its equipment investment due to the sluggish HBM business," adding that "discussions on additional investment will only begin after mass production supply to NVIDIA." Confirmed. "

Earlier, Samsung Electronics announced in its second-quarter earnings call that "we plan to mass produce and supply HBM3E 8-layer in the third quarter and 12-layer in the second half of the year, in line with Samsung Electronics' mass production plans for several customers." It is expected that the share of HBM3E in HBM sales will increase rapidly to 10% in the third quarter and 60% in the fourth quarter.

However, delays in Nvidia’s quality testing have made this prospect almost impossible to achieve, and despite some recent progress, including the completion of an audit of the Pyeongtaek campus, there are still no clear results.

Therefore, when Samsung Electronics announced its third-quarter interim results on the 8th, it officially stated that "in terms of HBM3E, commercialization of major customers was delayed than expected."

Samsung to cut senior chip executive positions

Faced with this dilemma, Samsung said it would cut senior chip executive positions.

Samsung, the world's largest memory chipmaker headquartered in South Korea, is reportedly auditing the memory division under the Device Solutions (DS) division, which is responsible for the semiconductor business. The review, which is directed by DS division head and Vice Chairman Jeon Young-hyun, will lead to a major restructuring during the company's year-end personnel fluctuations, sources said on Thursday.

They said the company will cut its foundry business or chip manufacturing business by tens of won and reorganize its semiconductor research center responsible for developing future chip technology.

As of the second quarter, Samsung's DS division had a total of 438 executives, accounting for 38% of the company's total 1,164 executives. Samsung's number of chip executives is more than twice that of its cross-town rival SK Hynix, which has 199 executives.

Many of Samsung's chip executives were appointed during the semiconductor boom of 2017-2018. However, in recent years, when the competitiveness of Samsung's chip business has been questioned, there have been no obvious executive layoffs.

Sources said that in the upcoming year-end executive changes, Samsung may adjust the leadership of the three key business units under the DS division - memory, foundry and system LSI - as well as the positions of chief technology officer and head of manufacturing and technology.

Chun, who took over in May, announced a major corporate shakeup on Tuesday after the company reported preliminary third-quarter earnings that fell short of expectations.

In a rare public apology by a top executive for poor business performance, he said: "The management leading the (memory) business bears full responsibility, and we will take the lead in overcoming this crisis and make the weak third quarter earnings a turning point for the company."

Industry officials said Samsung's DRAM competitiveness has declined to the point where a major restructuring is needed.

While Samsung did not provide a breakdown of divisional performance, analysts said its foundry business likely continued to lose 1.5 trillion won in the third quarter as it struggles to compete with leader Taiwan Semiconductor Manufacturing Co (TSMC), whose clients include Apple Inc and Nvidia Corp.

Samsung's System LSI unit, which makes logic and system chips, could also post a loss of 1.5 trillion won.

Analysts said Samsung's main memory business could post operating profit of 5.5 trillion won. If these figures are confirmed later this month, Samsung's memory profit will fall below SK Hynix's for the first time.

SK, which only makes memory chips, DRAM and NAND, is widely expected to post an operating profit of 6.77 trillion won in the July-September quarter.

Through drastic organizational restructuring and executive layoffs, Samsung aims to find out the reasons for the weakening competitiveness of its semiconductor business, especially in the field of high-bandwidth memory (HBM). Samsung is the only one among the three semiconductor giants, Samsung, SK Hynix and Micron, that does not supply the latest AI chip HBM3E to Nvidia, the world's top AI chip design company.

Currently, Samsung is supplying Nvidia with fourth-generation 8-layer HBM3 chips in small quantities.

SK Hynix, the world's second-largest memory chipmaker and leader in HBM chips, has been supplying 8-layer HBM3 in large quantities since March and plans to supply the more advanced 12-layer version from the fourth quarter.

The most profitable memory semiconductor, HBM3E, is mainly used in Nvidia's AI accelerators.

Concerns have also been raised about the competitiveness of Samsung's general-purpose DRAM products, such as double data rate 5 (DDR5) DRAM and fifth-generation 10nm DRAM D1B -- both used as on-device AI chips.

"It's a positive sign that Samsung has recognized its problems and is starting to address them," said Park Jae-geun, a semiconductor engineering professor at Hanyang University.

HBM 4, Samsung's hope

Samsung Electronics reportedly cited order delays, including its first acknowledgement of delays in supplying 12-layer HBM3E products to Nvidia, as the reason for the poor performance. Industry insiders predict that early mass production of sixth-generation HBM4 and mass production of 2nm foundry automotive solutions may be the breakthroughs needed to overcome these challenges. Given that SK Hynix already supplies related products to Nvidia, Samsung is expected to focus on early mass production of HBM4, which is expected to become mainstream next year.

The HBM supply contract between Nvidia and SK Hynix was confirmed until next year, prompting Samsung to accelerate supply contracts centered on Nvidia's competitors. Currently, other large technology companies such as AMD, Amazon, Microsoft, Google, and Qualcomm are also developing AI semiconductors. An industry insider explained, "The situation may be different next year as HBM orders from companies other than Nvidia increase," adding, "Although the scale of supplying HBM products to Nvidia is large, it does not mean that Samsung should only focus on Nvidia."

In the foundry sector, profitability remains a challenge, and Samsung is expected to further strengthen its "turnkey order" strategy. This approach alleviates concerns about technology leakage while also providing HBM in packaged form. Although some have argued that Samsung should divest its foundry business, Chairman Lee Jae-yong has refuted the idea. The industry interpreted this as Lee Jae-yong reaffirming his commitment to being "number one." He announced in 2019 his goal of being number one in system semiconductors by 2030, suggesting an aggressive product portfolio to overcome challenges through advanced processes and price competitiveness.

Against this backdrop, Samsung Foundry will begin mass production of GAA 2nm process from next year. The company also plans to complete the development of 2nm process using back side power supply network (BSPDN) technology by 2027. Samsung has secured Japanese AI unicorn Preferred Networks (PFN) and US AI semiconductor company Ambarella as 2nm process customers, and plans to seek cooperation with large technology companies.

To secure customers, Samsung will hold the "Foundry Forum 2024" online on October 12. Beijing, Tokyo, and Munich on the 24th. Much attention is paid to whether Samsung will announce plans to mass-produce cutting-edge 2nm automotive solutions at the Foundry Forum. An industry insider said, "It is possible that Samsung will propose a strategy at the Foundry Forum held this month that goes beyond the 'one-stop AI solution' turnkey order announced in July last year," adding, "Recently, Chairman Lee Jae-yong expressed his desire for foundry growth, and Samsung foundry activities are expected to become more active."

As Samsung navigates these challenges, the company’s strategic decisions and technological advances will be closely watched by industry stakeholders and investors. The coming months will be critical to whether Samsung can regain its foothold in the highly competitive semiconductor market and achieve its ambitious goals.

To survive, Samsung must rekindle its tradition of innovation

Samsung Electronics' operating profit in the third quarter was about 9.1 trillion won (about 6.7 billion U.S. dollars), a 13% decrease from the previous quarter and 16% lower than the average forecast of securities companies. The main reason is that the operating profit of the company's main business, the memory semiconductor division, dropped from 4.8 billion U.S. dollars in the second quarter to about 3.7 billion U.S. dollars in the third quarter.

In contrast, SK Hynix, the world's second-largest memory company, expects third-quarter operating profit to exceed $4.4 billion, potentially replacing Samsung as the top semiconductor profit earner for the first time. The shift is the result of SK Hynix's capture of the high-value high-bandwidth memory (HBM) market, while Samsung has fallen behind because its strategic focus missed out on the growing artificial intelligence (AI) semiconductor ecosystem led by NVIDIA, a trend that began with the rise of ChatGPT two years ago.

Samsung’s failure to foresee the shift from general-purpose DRAM to customized system semiconductors for individual customers, coupled with its late entry into HBM development, has cost it dearly.

Although Samsung announced plans to start mass production of HBM3E for NVIDIA in the third quarter, the company has yet to pass NVIDIA's quality tests, let alone start production. Meanwhile, the company's $127.5 billion investment plan announced five years ago to support its ambitious goal of becoming a leader in system semiconductors by 2030 has proven to be unsuccessful. In 2019, Samsung's market share gap with Taiwan's TSMC was 50% to 20%, but this year, the gap has widened to 62% to 12%.

Global investment banks have expressed pessimism about Samsung's future, and foreign investors have sold more than $6.7 billion worth of Samsung shares, sparking criticism that the pessimism is excessive.

The head of Samsung's semiconductor division issued a rare public apology, acknowledging concerns about the company's future competitiveness, a stark contrast to the company once known for its "extreme dominance." The question now is: Where is the Samsung we once knew?

Looking back at Samsung’s recent travails, one has to wonder where the company’s once-sharp strategic judgment, its unrivalled speed at outstripping rivals and its relentless drive to be the best have gone.

Samsung developed the world’s first 256M DRAM in 1994 and has been leading the industry with “world’s first” innovations, but has lost its innovation edge since 2020 as competitors have claimed these milestones. While top management undoubtedly bears much of the responsibility, the company’s internal culture has become so stagnant that it has been derided as “Sanmaoyuan” (a combination of Samsung and bureaucracy).

It is said that when managers try to motivate their teams by calling on employees to work harder, employees react with irony, arguing that managers should go the extra mile. Further fueling discontent is the workers, who are among the highest paid in the country but recently went on strike to demand higher wages.

Samsung's recent complacency can partly be attributed to Chairman Lee Jae-yong's eight-year legal entanglement.

However, there are other important factors. While TSMC's board is staffed by top semiconductor experts, Samsung's board includes bureaucrats, financiers and academics with little technical expertise.

Such a board is unlikely to offer criticism or drive innovative decisions. To regain its former dominance, Samsung must reform its decision-making system and management structure and recognize that remaining competitive depends entirely on improving its technological capabilities.

The company must also go all-out in recruiting top technical talent, and Chairman Li and his leadership team need to abandon their defensive, risk-averse approach.

Samsung’s commitment to quality will make the company’s revival challenging if the pioneering spirit embodied in the Anycall bonfire ceremony, where defective products are symbolically burned, is not restored. This is worrisome as Samsung’s future is closely tied to the future of the South Korean economy.

END

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