Recently, Samsung Electronics, the world's largest memory chip manufacturer, disclosed its performance report for the second quarter.
Samsung Electronics' performance report for the second quarter of 2024 showed an astonishing financial performance, with operating profit soaring by 1452% year-on-year, reaching 10.4 trillion won (approximately 55.1 billion yuan). This figure not only significantly exceeded the general expectations of market analysts but also marked a significant improvement in Samsung Electronics' profit situation since the second half of 2022.
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AI demand explodes, Samsung and SK Hynix turn losses into profits, and performance soars
Samsung's performance in the second quarter far exceeded market expectations, with profits soaring 14 times.
In the second half of 2022, Samsung Electronics had faced a significant decline in its device solutions division and overall profits, with operating profit once falling below 1 trillion won. However, starting in the second half of 2023, with the improvement of the market environment, Samsung Electronics' profits began to rebound, with operating profits in the third and fourth quarters returning to over 2 trillion won. In 2024, the operating profit for the first quarter reached 6.61 trillion won, a tenfold increase compared to the 0.64 trillion won in the same period last year.
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As AI demand surges, leading to intensified memory competition, Samsung will increase the prices of DRAM and NAND by 15%-20% in the third quarter, and it is expected that Samsung Electronics' performance in the second half of the year will also improve.
At the same time, another South Korean memory chip giant, SK Hynix, also achieved a significant improvement in performance in the second quarter. SK Hynix will announce its second-quarter financial report on July 26. The market expects its operating profit to reach 5 trillion won (approximately 26.35 billion yuan), setting a 6-year high. This indicates that the entire memory chip industry is benefiting from the growth of AI-related demand, especially in the high-bandwidth memory (HBM) field, where the compound annual growth rate (CAGR) is expected to reach 70% in the next few years.According to statistics, over the past month, at least 19 analysts have raised their forecasts for the company, citing the huge potential of AI demand and the possibility of positive surprises in the financial reports released this month.
Goldman Sachs Group has raised its target price for SK Hynix to 290,000 Korean won. Citigroup has also increased its target price for SK Hynix to 350,000 Korean won.
Roh Jongwon, Chief Investment Officer of Infinity Global Asset Management, said that the current valuation of SK Hynix's stock does not fully reflect the potential of High Bandwidth Memory (HBM). The profit of HBM is almost double that of traditional DRAM chips, but the market still treats the valuation of these two products equally.
In the second quarter of last year, SK Hynix's operating loss reached 2.88 trillion Korean won, a sequential increase of 15%; the net loss reached 2.99 trillion Korean won, a sequential decrease of 16%; the quarterly operating loss rate was 39%, and the net loss rate was 41%. However, with the emergence of artificial intelligence, this predicament has turned around.
In the first quarter of this year, SK Hynix's consolidated revenue was 12.4296 trillion Korean won, with an operating profit of 2.886 trillion Korean won and a net profit of 1.917 trillion Korean won. The first-quarter revenue set a historical high for the same period, and the operating profit was the second-highest for the same period. With the leadership of AI-oriented memory technologies such as HBM, SK Hynix has increased product sales for AI servers, while continuing to implement profit-oriented business activities, achieving a sequential increase of 734% in operating profit.
The explosive growth in this performance is mainly due to the surge in demand for artificial intelligence (AI), which has directly driven up the prices of memory chips. As the world's largest suppliers of memory chips, Samsung Electronics and SK Hynix are in a favorable position in the AI wave, benefiting from the strong demand for high-performance storage solutions (mainly HBM) from data centers, cloud computing, and various intelligent devices.
AI servers need to process a large amount of parallel data, requiring high computing power and large bandwidth. High computing power means that AI servers can process data faster, while large bandwidth means that the server can access more data at the same time. HBM meets the demand of AI servers for efficient data processing by providing high bandwidth and low latency, making the training and inference process of AI models faster and more efficient. This is the main reason driving the annual growth of HBM market demand.
In this context, HBM has become the "standard configuration" for the current mainstream AI training chips. A research report by Zhongtai Securities in March pointed out that the mainstream AI training chips are equipped with multiple HBMs. Taking NVIDIA's AI training chip H100 as an example, one NVIDIA H100 chip uses TSMC packaging technology to package seven chips (one GPU + six HBMs) together.
In May, the well-known market research institution DIGITIMES released a report stating that the global server GPU output value (including memory, motherboards, and subsystems) will reach 121.9 billion US dollars in 2024, of which the high-end server GPU output value will account for more than 80%, reaching 102.2 billion US dollars.
As a key component of AI training chips, the orders for HBM have also surged along with AI servers.Storage Giants Continue to Increase Investment in Production Expansion and Layout
During the earnings call for SK Hynix and Micron Technology, executives from both companies stated that their High Bandwidth Memory (HBM) orders have been fully booked, with production capacity sold out until 2025. Samsung Electronics also emphasized in its first quarter 2024 earnings call: "In 2024, our supply of HBM bits has actually increased by more than three times compared to last year. We have completed discussions with customers regarding related supplies. In 2025, we will continue to expand our supply, at least doubling or more compared to last year."
Faced with the overwhelming demand for orders, storage giants are increasing their layout.
In the first quarter 2024 earnings call of SK Hynix, the company's management stated that in order to actively support the growing demand for AI memory as well as traditional DRAM, they have decided to invest in the construction of a new DRAM production base, M15X, with the goal of launching it by the end of 2025.
In addition, SK Hynix has decided to build an advanced AI memory packaging production facility in West Lafayette, Indiana, USA. The total investment for this facility is about $3.87 billion, and it will begin mass production of next-generation AI memory products, including HBM, from 2028.
SK Hynix is expanding its 5th generation 1b DRAM to cope with the increased demand for HBM and DDR5 DRAM. SK Hynix has placed orders with several equipment companies. Through this investment, SK Hynix's 1b DRAM production capacity is expected to increase from 10,000 wafers per month in the first quarter to 90,000 wafers per month by the end of the year. SK Hynix also plans to increase the production of 1b DRAM to 140,000 to 150,000 wafers per month in the first half of next year.
On June 30, South Korea's SK Group, the parent company of SK Hynix, stated that by 2028, SK Hynix will invest 103 trillion won ($74.6 billion) to strengthen its chip business, focusing on artificial intelligence. SK Group also stated that it plans to secure 80 trillion won in funds by 2026 for investment in the fields of artificial intelligence and semiconductors, as well as to provide funds for shareholder returns and to streamline more than 175 subsidiaries.
Samsung is not lagging behind. Samsung Electronics will launch a 3D packaging service for High Bandwidth Memory (HBM) within the year, and the sixth-generation HBM chip, HBM4, planned for release next year, will adopt this packaging method.It is reported that Samsung Electronics has once again restructured its High Bandwidth Memory (HBM) team, adjusting the advanced packaging organization structure. Previously, Samsung Electronics established an HBM capacity and quality improvement team, specifically responsible for the development of HBM4, running in parallel with the original HBM team. The newly established "HBM Development Team" will replace the previous two teams, taking charge of the development of HBM3E and HBM4 memory, and focusing human and material resources on catching up with the leader in HBM business, SK hynix. Samsung Electronics also renamed the advanced packaging business team to "AVP Development Team", split the sales and marketing organization of the original team into various business departments, and merged the HBM packaging developers into the HBM Development Team to enhance the competitiveness of the latter.
Samsung Electronics has also decided to reorganize the Device Technology Research Institute to strengthen the technical support capabilities of semiconductor processes and equipment, providing broader technical support for the improvement of semiconductor process efficiency.
Samsung Electronics is also upgrading its factory in Pyeongtaek, South Korea, with an expected completion time of April 2027.
In addition, Micron is also catching up. It is reported that the next-generation HBM being developed by Micron has an advantage in power consumption compared to SK hynix and Samsung Electronics. Micron Technology also plans to expand its production line in Hiroshima, Japan. Micron Technology is expected to invest 60 billion to 80 billion yen (about 5.1 billion US dollars). This new factory will start construction in early 2026 and install EUV equipment.
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HBM4 becomes a competitive hotspot
With the continuous investment of major companies, the iteration of HBM technology is becoming faster and faster. The industry standard-setting organization, JEDEC Solid State Technology Association, recently stated that the HBM4 standard is about to be finalized, which further improves the data processing rate in addition to higher bandwidth, lower power consumption, and increased bare die/stack performance. It is reported that compared with HBM3, the number of channels per stack of HBM4 has doubled, and the physical size is larger.
Surrounding HBM, manufacturers are also coming up with various tricks around the future HBM 4 technology.
SK hynix is promoting the development of TSV and MR-MUF technologies, which play a key role in HBM performance. Although MR-MUF is widely used, it has some shortcomings, such as easy warping, causing wafer end bending, and void phenomena (that is, uneven distribution of protective materials in some areas), which will also have a negative impact on the reliability of MR-MUF. SK hynix said that compared with the early stage of HBM development, they have successfully reduced warping phenomena, and currently, we are developing technology to overcome this problem. Next, the choice will focus on reducing voids.In addition, SK Hynix is committed to the development of next-generation advanced packaging technologies such as Chiplet and Hybrid bonding to support heterogeneous integration between semiconductor memory and logic chips, while promoting the development of new types of semiconductors. Among them, Hybrid bonding is also considered a new option for HBM packaging. However, unlike previous plans, SK Hynix intends to continue using cutting-edge packaging technology MR-MUF in the next generation of HBM 4. The hybrid bonding technology, which emerged as an alternative, is expected to be introduced slowly due to the relaxation of the HBM standard.
In April of this year, SK Hynix and TSMC signed a memorandum of understanding to cooperate in the production of the next generation of HBM and improve the integration of logic and HBM through advanced packaging technology. The company plans to develop HBM4, the sixth generation of the HBM series, through this initiative, which is expected to start mass production in 2026. The two companies will first focus on improving the performance of the base chip installed at the bottom of the HBM packaging and agree to cooperate in optimizing the integration of SK Hynix's HBM and TSMC's CoWoS technology to meet customers' common requirements for HBM.
Unlike SK Hynix, Samsung adopts TC-NCF (thermal compression with non-conductive film) for HBM packaging, which is thermal compression with non-conductive film. With the development, Samsung has gradually reduced the thickness of the NCF material, reducing the thickness of the 12-layer fifth-generation HBM3E to 7 micrometers (μm).
Samsung Electronics has concentrated its efforts across the company and announced the "Advanced TC-NCF" technology in February. This technology can reduce the thickness of the necessary thin film in the TC-NCF process, thereby increasing the number of semiconductor layers while maintaining the height of HBM.
Samsung Electronics has applied the MOSFET process to HBM3E and is actively considering applying the FinFET process from HBM4. As a result, compared with the application of MOSFET, the speed of HBM4 has increased by 200%, the area has been reduced by 70%, and the performance has improved by more than 50%. This is the first time Samsung Electronics has publicly disclosed the HBM4 specifications.
Reports indicate that Samsung Electronics has recently formulated a plan internally to change the originally planned 1b DRAM in HBM4 to 1c DRAM.
In addition, according to a report by the Korean media etnews, Samsung Electronics and SK Hynix have already started the process technology transformation of high-bandwidth memory (HBM) wafers. This transformation, centered on the introduction of new technology to prevent wafer warping, is considered to be aimed at the next generation of HBM. It is expected that with the process transformation, the material and equipment supply chain will also change. It is reported that Samsung Electronics and SK Hynix are recently developing with partners to change the HBM wafer debonding (decoupling) process to a laser method.
When applying lasers, changes in the related material and equipment supply chain are inevitable. The existing mechanical method is dominated by Tokyo Electron of Japan and SÜSS MicroTec of Germany. The laser method may attract more equipment companies to enter, and it is expected to launch a fierce competition.
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Samsung still faces internal and external troublesAlthough Samsung is benefiting from an industry recovery driven by the AI boom, the tech giant is not without its worries.
In the key area of HBM chips during the AI boom, Samsung faces fierce competition from SK Hynix. It has been reported that Samsung Electronics' HBM3e (High Bandwidth Memory) chips have passed quality tests by Nvidia, and Samsung will negotiate the mass production of HBM and supply to Nvidia.
In May of this year, there was news that Samsung's latest HBM chips had not passed Nvidia's inspection. Sources said that the main reason for Samsung's product failing the test was that TSMC "used test standards based on SK Hynix's HBM3E product" in the inspection. Subsequently, Samsung Electronics stated that the claim that the chip had not passed the test due to heat and power consumption issues was "untrue", and the "test is progressing smoothly and on schedule."
In addition, Samsung itself also has internal management concerns: just a few days before Samsung announced its performance, Samsung's union organizers planned to hold a three-day strike among its more than 28,000 members, including members of the main chip factories, due to wage disputes. Last month, the company experienced a strike involving a small number of employees, which was the first strike in the company's 55-year history.
On July 10th local time, the largest union organization of Samsung Electronics in South Korea, "National Samsung Electronics Union," announced the start of an open-ended strike. The National Samsung Electronics Union originally planned to hold a three-day strike starting on the 8th, and then a five-day second strike starting on the 15th. However, due to the lack of willingness to dialogue on the part of the employer, the union decided to launch an open-ended strike.
This strike may reflect the recent deterioration of Samsung Electronics' operating conditions. Industry insiders say that Samsung Electronics incurred losses in its semiconductor business last year due to a failure to respond to market demand in a timely manner in the semiconductor industry and the field of artificial intelligence chips. The union pointed out that the root cause of this crisis lies in the decision-making errors of the management, not the responsibility of the employees.
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