Can Samsung get its mojo back?

SAMSUNG Electronics, South Korea’s most valuable company, is the archetype of vertical integration. The smartphones and other consumer electronics it is best known for accounted for about half of its revenue and a quarter of its operating profit in the period from April to June. The rest came from the components that go into such devices – including the semiconductors that run them.

On Jul 31, the company reported that its operating profit in the most recent quarter was up sixteenfold, year on year, thanks to growth in its chip business. Demand is rocketing as tech giants such as Microsoft and Alphabet rush to build data centres to support their artificial intelligence (AI) ambitions. Samsung’s share price rose 4 per cent on the day. Yet a single bumper quarter cannot obscure the company’s deeper challenges. Most worrying is that it has been losing ground to rival chipmakers. Global technology stocks are up by 82 per cent since the start of 2023. Samsung’s value has risen by just half that.

The South Korean giant is struggling to compete at the cutting edge of both logic chips (which process information) and memory chips (which store it). In the first category, it has fallen further behind Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese foundry that manufactures semiconductors on behalf of companies such as Nvidia, the leading supplier of AI chips. Between the first quarters of 2019 and 2024, the Taiwanese firm increased its share of the global chip-foundry business from 48 per cent to 61 per cent, according to Trendforce, a research firm. Samsung’s share fell from 19 per cent to 11 per cent.