Samsung Electronics, Semiconductor Profitability Improvement... HBM Gap Narrows Further Next Year's HBM Competition Full-Scale... Yield and LTA Expected to Determine Market Leadership

Having consistently maintained market leadership since the AI semiconductor boom, SK Hynix is now expected to enter full-scale competition with Samsung Electronics. While Samsung has previously driven its sales primarily centered on legacy DRAM, it is now increasing its HBM sales proportion, setting the stage for a full-scale leadership battle between the two companies.

◇ Samsung Electronics' Profitability Improvement... Did HBM Sales Proportions Increase? = According to the industry on the 28th, Samsung Electronics' DS (Device Solutions) division is projected to record sales approaching 200 trillion won in the third quarter of this year, with operating profit also expected to exceed 100 trillion won. The operating profit margin is expected to edge up to 54% from 52% in the second quarter.

Although the company-wide financial performance lags behind SK Hynix, which posted an operating profit margin of 76%, the semiconductor-dedicated DS division is expected to record an operating profit margin in the 73% range. In the second quarter, the operating profit margin of Samsung's DS division was 70%.

This expansion in Samsung Electronics' profitability is attributed to improved HBM performance. Park Yu-ak, an analyst at Kiwang Securities, forecasted, "With the sales proportion of HBM4 exceeding a majority, strong growth momentum will continue, and foundry and System LSI will also see sales growth driven by the mass production rollout of the Exynos 2800."

The performance improvement in HBM is impacting not only the DRAM business but also the foundry business. In the case of foundry, as HBM4E is applied to the logic base die, performance improvements are anticipated. While SK Hynix has been proceeding with this process in cooperation with Taiwan's TSMC, Samsung Electronics can secure higher profitability by handling it through its own foundry.

Previously, during its Q2 earnings announcement, Samsung Electronics stated, "We plan to lead the market and solidify our technological leadership by expanding sales of high-performance HBM4E including HBM4, DDR5, SOCAMM2, and eSSD." Against this backdrop, the improvement in the DS division's operating profit margin is interpreted as an increase in the sales proportion of high-value-added HBM products. Consequently, observations suggest that Samsung has also narrowed its HBM market share gap with SK Hynix.

◇ Narrowed HBM Gap... Full-Scale Market Share Competition Next Year = Swiss financial institution UBS recently released a report projecting that next year, the HBM bit shipment volumes of Samsung Electronics and SK Hynix will achieve parity in the 40% range. UBS projected that Samsung's shipments will increase from 20 billion gigabits (Gb) to 230 billion Gb, while SK Hynix's shipments will decrease from 247 billion Gb to 231 billion Gb.

UBS explained that while Samsung rapidly ramps up production, SK Hynix is allocating some of its production capacity to DDR5 and LPDDR5X, leading to similar bit market shares.

Similar reactions are emerging from domestic securities firms. Son In-jun, an analyst at Eugene Investment & Securities, noted, "HBM still accounts for a single-digit percentage of Samsung Electronics' DRAM sales, meaning legacy DRAM shipment volumes and prices have a greater impact on overall performance." He added, "Looking strictly at HBM4, Samsung is expected to secure a market share similar to SK Hynix this year."

This trend began manifesting as early as the beginning of this year. According to market research firm Counterpoint Research, the HBM market share in the first quarter of this year placed SK Hynix first at 58%, with Samsung Electronics and Micron tied for second at 21%. However, in the second quarter, SK Hynix stood at 50%, Samsung Electronics at 33%, and Micron at 18%, shrinking the gap between the first and second place holders.

Reviewing market share changes over the past year, SK Hynix's share has steadily declined while Samsung Electronics' has steadily increased. For this reason, next year is expected to see SK Hynix and Samsung Electronics secure comparable levels of HBM market share and plunge into full-scale competition.

◇ 'Yield and LTA' as Core Variables Determining HBM Leadership = Industry insiders are paying close attention to yield and long-term supply agreements as the core variables that will shape next year's HBM4E competition. In particular, as the technological gap in HBM between the two companies narrows significantly in HBM4E, yield and thermal management at 12 and 16 layers are expected to become pivotal variables determining product competitiveness.

Long-term supply agreements (LTAs) are also major variables determining market share. LTAs, typically signed for periods of at least 5 years, act as a key factor in solidifying market share. While SK Hynix has maintained market dominance and secured major clients, Samsung Electronics has likewise concentrated on winning over customers.

According to currently disclosed LTA statuses, SK Hynix has finalized contracts with 10 to 11 entities. Contract durations are typically 5 years, though they may vary depending on customer circumstances and products. Conversely, while Samsung Electronics has not disclosed specific contract sizes, it has concluded contracts with major global data center operators and is pursuing additional negotiations. Contract durations are expected to follow a basic 5-year term with 1-year extension options, similar to SK Hynix.

As LTAs expand, SK Hynix, having maintained existing market dominance, can occupy a more advantageous position backed by customer trust. However, as customer demand expands, buyers are also seeking supply chain diversification rather than relying on a single supplier, which increases opportunities for Samsung Electronics to join the supply chain. Because of this, the future HBM market is projected to unfold as a fierce battle for positioning between primary and secondary suppliers.