Samsung's "eventful fall": missed the AI wave, the market value of $ 122 billion evaporation

In just a few months, Samsung has been slapped on the beach by the wave of AI, evaporating $122 billion in market value.

A few months ago, Samsung's market performance seemed to show that it was ready to benefit from the global AI boom, with not only soaring profits but also a record share price.

However, Samsung's shares have fallen 32% from their yearly high on July 9, as market concerns grow that the company is falling behind smaller rival SK Hynix in AI memory and failing to catch up with TSMC in foundry chip manufacturing.Market value evaporated by $122 billion, more than any other chipmaker in the world.

Investors pull out after missing out on AI and falling behind Hynix

In recent years, the semiconductor business has contributed the most profit for the company. Previously, Samsung reported a 15-fold increase in operating profit for the June quarter, exceeding analysts' expectations, and the stock price hit a record high at one point as a result. By August of this year, investors were also optimistic that Samsung could win more business and provide NVIDIA with with the high-bandwidth memory used in AI processors.

However, just earlier this month, theShortly after SK Hynix announced that it had begun mass production of the new HBM chips, Samsung acknowledged production delays for its latest generation of HBM chips, which means the tech giant is lagging behind Hynix. Meanwhile, its U.S. rival Micron Technology has increased its investment in HBM and reported strong demand for its products.

Recently, due to the third quarter results fell short of expectations, Samsung chip business head rare public apology, further triggered the market's concerns about its semiconductor business, foreign investors have withdrawn from Samsung. since the end of July, overseas investors have net sold about $ 10.7 billion of Samsung shares.

Young Jae Lee, senior investment manager at Pictet Asset Management Co. said:

"Samsung is losing its technological leadership in semiconductors, by its very nature, technology leadership is difficult to regain in the short term."

Fund manager: Samsung can't turn things around in the short term

Samsung is also trying to close the gap with TSMC in the foundry business, a process that has been costly and ongoing for years. Today.Samsung is turning to layoffs and other efforts to "stop the bleeding.", a large number of semiconductor engineers at Samsung are considering jumping ship to rivals or government-backed research organizations.

Although Samsung has promised reforms to restore competitiveness, international fund managers, including Pictet Asset Management Ltd. and Janus Henderson Investors, are not optimistic.Thinks Samsung is unlikely to turn things around in the near future.

Sat Duhra, portfolio manager at Janus Henderson Investors SP in Singapore, said:

"Samsung was the largest position in our strategy in July, and we have cut our position by more than half over the past few months. Although its shares have fallen to attractive valuations, we have no intention of buying these stocks at this time."

Analysts say management may need to make a big effort to regain investors' trust. At the end of the second quarter, Park Jinho, head of equity at NH-Amundi Asset Management Co. in Seoul, downgraded Samsung to "hold" from "neutral" and increased his stake in Hynix.

How Samsung fell out of the AI chip race

The fire of the big model, in addition to making NVIDIA's GPUs hard to find at one price, has also completely detonated the HBM chip market.

The so-called HBM chip, known as High Bandwidth Memory, is a new type of CPU/GPU memory chip. It is a new type of CPU/GPU memory chip. By stacking multiple DDR chips together and packaging them with GPUs, it realizes the real demand of high computing power and large storage in the era of large models.

Among all memory chips, HBM is regarded as "the most suitable memory chip for AI training and reasoning". Therefore, HBM is gradually becoming a key force for storage industry giants to realize performance reversal in the market down cycle.

Previously, Samsung's rival SK Hynix has been working on shifting capacity to HBM (for driving generative AI), which has led to a reduction in production of general-purpose memory across the market. The resulting supply crunch has driven up the price of general-purpose storage chips and sent Samsung's earnings way up.

Samsung, on the other hand, is lagging behind its competitors in the development of HBM.

In May, SK Hynix and Micron Technology have started delivering state-of-the-art HBM3E to NVIDIA, while Samsung is still in the final stages of passing NVIDIA's quality standards. Samsung's semiconductor division changed hands in May, with the former head admitting to mistakes in the early stages of developing AI memory chips. Samsung also has a separate head for the consumer products business, who also serves as chief executive officer, with executive chairman Lee Jae-Yong (Lee Jae-Yong) taking full charge and setting strategy.

Samsung Electronics also admitted on Tuesday that there were delays in rolling out the latest version of its high-bandwidth memory, HBM3E, to key customers.

Data from the secondary market shows that since the beginning of this year, Samsung Electronics shares have fallen about 24%, while the shares of two rival high-bandwidth memory makers - South Korea's SK Hynix and the U.S.'s Micron Technology - have risen more than 20% .

Strikes spread overseas

Chip foundry share falls short of expectations

The house is falling apart, and while the AI chips are not progressing well, the strike movement at Samsung Electronics has spread from South Korea to overseas markets.

On July 8 this year, the National Samsung Electronics Union (NSEU) announced that more than 6,500 Samsung employees will begin a three-day mass strike, including 5,211 employees in semiconductor equipment, manufacturing and development positions. National Samsung Electronics Union (NSEU) has about 30,000 members, accounting for nearly 1/4 of the total number of Samsung employees in Korea.

The main demands made by the union side include an average wage increase of 3.5% for union members, a day off for the anniversary of the union's founding, and adjustments to the measurement of performance bonuses. However, the Samsung leadership failed to respond to the relevant demands, and the National Samsung Electronics Union decided to go on an indefinite strike.

On July 12, hundreds of employees from Samsung Electronics' labor union, continued their strike protest in front of Samsung's High Bandwidth Memory factory located south of Seoul, South Korea. The factory is involved in Samsung's most important HBM chip development and manufacturing business at the moment, and Samsung Electronics is now doing everything it can to convince NVIDIA to use its HBM memory chips. Lee Hyun-guk, deputy secretary-general of the union, said the strike against the high-end chip production line was the "most effective" measure against Samsung's management.

The strike in South Korea was followed by strike action at Samsung Electronics' home appliance plant in the southern Indian state of Tamil Nadu in September. The plant is crucial to Samsung Electronics and accounts for about a fifth of Samsung's $12 billion in sales in India between 2022 and 2023. Striking employees, who have been halting production since September 9, have set up makeshift tents next to the plant near the city of Chennai to demand higher wages and union recognition.

The strike action, now in its second month, is one of the largest labor disputes in India in recent years. Samsung Electronics has offered in its settlement package a bonus of 5,000 rupees per month until March next year, additional buses equipped with air conditioning, an enriched menu in the staff restaurant and a $24 gift card as a maternity bonus.

However, the striking employees rejected the company's settlement offer of a pay hike. Sundararajan, the Tamil Nadu-based head of the Centre of Indian Trade Unions, a labour group that supported the protests, said the settlement did not include a demand for union recognition.

A series of strike action carried out in the process, Samsung chip foundry business market share and TSMC gap is widening. Samsung has set out its vision for 2019: by 2030, it will not only be the world's No. 1 in the field of memory chips, but also in the field of logic chip foundry and chip design business. Samsung's chip foundry business includes making chips for customers such as Nvidia, Qualcomm and Apple.

Research firm TrendForce expects TSMC's share of global foundry revenue to rise to 64% this year, up from 51% in 2019.Samsung's share is expected to be 10%, down from 16% in the same period.

Samsung's foundry business has limited capacity compared with TSMC, partly because of lower yields in cutting-edge processes, said Joanne Chiao, an analyst at Tibco. Sanjeev Rana, a Seoul-based technology analyst at brokerage firm Citic Lyon Securities (CLSA), on the other hand, said, "AI is a big trend, but Samsung has made a lot of mistakes that will take time to correct."