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Samsung Shifts Focus to High-end AI Chips, Slashes Memory Chip Production

Following a significant operating loss, Samsung Electronics is reducing its memory chip production to focus on the manufacture of high-end AI chips.

Samsung Prioritizes High-End AI Chips Over Memory Chips

Facing a downturn in its memory chip unit, Samsung Electronics has chosen to reduce its memory chip production, focusing instead on the production of high-end AI chips. This decision follows a reported $3.4 billion (4.36 trillion won) operating loss in its memory chip unit in Q2 2023, marking a roughly $7 billion loss in its semiconductor business in H1 2023.

In April, Samsung had already reduced its memory chip production due to weak consumer device demand, causing the worst quarterly profits since 2009. However, despite these challenges, the tech behemoth is looking towards a promising AI future. By 2024, Samsung aims to double down on high-performance memory chip production, such as high-bandwidth memory (HBM), in response to increasing AI demand. HBM, used in AI, 5G, the Internet of Things (IoT), graphic processing applications, virtual reality, and augmented reality systems, provides faster data processing and lower power consumption than traditional NAND.

Samsung observed that while server demand remained weak, demand for high-density/high-performance products remained strong due to increased AI-focused investments by major hyperscalers. Jaejune Kim, the executive vice president of Samsung’s memory division, affirmed in an earnings call that while memory chip production cuts would continue, the company plans to double its capacities of high-performance memory chips, including HBM, anticipating steady growth in demand for such advanced memory chips.

Samsung also revealed plans to introduce 2-nanometer production for mobile phone parts by 2025 as part of its foundry business strategy.

Samsung's Q2 2023 operating profits of approximately $524 million are down from the previous year but exceeded expectations. Despite a 95% drop in Q2 operating profits, Samsung expects a gradual recovery in global demand for memory chips in the second half of the year. However, the company acknowledged the potential challenge of macroeconomic risks in the recovery process.

Samsung recently launched its latest device models, including Galaxy Z Fold 5, Galaxy Z Flip 5, Galaxy Tap S9, and Galaxy Watch 6/Watch 6 Classic, at its "Unpacked" international product launch event.