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Samsung has turned its eye to Chinese technology groups to help the diseased semiconductor sector as it struggles to secure large U.S. customers despite investing tens of thousands of dollars in American manufacturing facilities.
Last month, the Korean electronics group revealed that the value of exports to China jumped 54% between 2023 and 2024.
In one previously unreported transaction, last year, Samsung sold its supply of logic dies for over three years (a key component in the manufacture of AI chips) to Kunlun, a semiconductor design subsidiary of Chinese technology group Baidu.
However, the increasing importance of China’s sales to Samsung is to navigate the growing trade tensions between Washington and Beijing over the development of sensitive technology.
The South Korean technology giant announced last year that it invested $4 billion in expanding its advanced chip manufacturing and packaging facilities in Texas, an increase of up to $6.4 billion in federal grants.
However, Samsung’s contract chipmaking business has struggled to secure large US customers, bleeding market share to Taiwan Semiconductor Manufacturing Co, investing “at least $100 million” in chip manufacturing plants in Arizona.
“Samsung and China need each other,” said CW Chung, co-head of Nomura’s APAC equity research. “Chinese customers have become more important to Samsung, but it’s not easy to do business together.”
Samsung also ranks in the local rival SK Hynix in the booming market of another key component of the AI chip: “high bandwidth memory.” As the leading supplier of HBMS used by Nvidia, SK Hynix’s quarterly operating profit exceeded Samsung’s operating profit for the first time in both companies’ history.
“Chinese companies don’t even have the opportunity to buy SK Hynix HBMs, as supply is purchased by major AI chip producers such as Nvidia, AMD, Intel and Broadcom.”
“What Samsung produces is inferior, but there is still no local HBM replacement, so it’s enough scrap for the Chinese.”
According to consultant Semian Alicis, Samsung is “HBM’s largest supplier to China” and is used in Huawei’s Ascend 910 series AI chip.
The Korean group’s contract chip making business has also partnered with Kunlun to produce the Core P800, an AI chip released in February that also includes Samsung HBM.
Those familiar with Samsung’s ideas said they wanted to work with Kunlun to create even more advanced AI chips, but the project was pending due to new US restrictions that came into effect in January.
The curb that suppresses the permitted performance of AI chips produced by foreign foundries for Chinese customers was tightened after TSMC admitted last year that it misassembled the AI chips from a shell company acting on behalf of Huawei.
“Our business with Baidu has become uncertain since strong US export controls came into effect in January,” said a person close to Samsung, who is seeking more room from US authorities.
Goodrich stressed that Samsung had violated US regulations regarding the production of Kunlun AI chips or that there were no suggestions that “the performance of these chips is unknown” and that “there is no suggestion that it violated US regulations regarding the death of Logic to Baidu’s subsidiary.
However, he meant that Chinese companies would “take whatever they can get, either with HBM or logic casting capabilities,” as Chinese companies were not yet competitive.
He added, “The more Samsung produces Baidu’s highly competitive chips, it raises questions about whether it would need to adjust the performance thresholds of US restrictions — the longer US officials get, the more many of these chips will be produced for China.”
“It complies strictly with export restrictions set by the US government. We cannot comment on customer relationships,” Samsung said.
