Samsung will continue to hold on to contract manufacturing of chips, although there are continuous problems with it

Analysts say Samsung Electronics’ contract chip manufacturing and logic chip design businesses are costing the company billions of dollars in losses every year. Despite rumors that these areas will be separated into separate companies, Samsung is determined to keep them as part of the parent company and develop them further.

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Samsung has been steadily expanding its logic chip design and contract manufacturing activities to reduce its dependence on sales of conventional memory chips. In 2019, company chairman Jay Y. Lee announced plans to overtake Taiwan’s TSMC to become the world’s largest contract chipmaker by 2030. Since then, the company has invested billions of dollars in contract chip manufacturing, building new factories in South Korea and the United States.

However, according to informed sources, Samsung does not have enough large orders to fully utilize the new capacity. Analysts say the business of designing and making chips for other customers is costing billions of dollars in annual losses due to weak demand and dragging down the overall productivity of the South Korean company, which is the world’s largest memory chip maker.

But when asked whether Samsung was considering spinning off its chip manufacturing business or its logic chip design business, Lee said: “We are hungry to grow the business. Not interested in singling (them out).” He acknowledged that Samsung is facing difficulties at the new chip plant it is building in Texas: “It’s a little difficult because of the changing situation, the election.” In April, Samsung pushed up the project’s production schedule from late 2024 to 2026.

Last year, Samsung reported a total operating loss of 3.18 trillion won ($2.4 billion) from contract chip manufacturing and logic chip design. The share in losses of each of the directions is not disclosed. The two divisions are forecast to post a combined loss of 2.08 trillion won ($1.57 billion) this year.

Samsung Electronics separated its semiconductor manufacturing from its design business in 2017, but contract chip manufacturing clients remain concerned about the safety of their technology secrets. “In principle, it is better for Samsung to separate its business to gain the trust of customers,” said Lee Jong-hwan, a professor in the department of systems semiconductor engineering at Sangmyeon University. But the spin-off unit will have a harder time surviving because it will lose access to financial support from the memory chip business.