[Peace&Chips] Exynos, Will It Become Samsung Semiconductor's Savior?

Memory Drives Samsung Electronics' Q2 Earnings
Non-Memory Business Also Expected to Reduce Losses

Focus on System LSI and Foundry Performance in H2
Exynos Success Determines Earnings Outcome

When Samsung Electronics announced its preliminary Q2 earnings on the 5th, the market reacted with surprise. This was because the company reported strong results that exceeded market expectations. Samsung Electronics' total operating profit for Q2 was 10.4 trillion KRW, with the semiconductor (DS Division) likely accounting for more than half of that. There are also forecasts that the DS Division's operating profit exceeded 6 trillion KRW. This is a result of the memory semiconductor market entering a full recovery phase, leading to rising product prices.

How did the non-memory semiconductor business perform? Samsung Electronics has not only the Memory Business within the DS Division but also the System LSI Business (design) and Foundry Business (production), which correspond to the system semiconductor sector. Since the operating profits of these two business units are not disclosed separately, we need to look at forecasts. The market expects that the losses, which continued through Q1, have decreased in Q2. Korea Investment & Securities and BNK Securities forecast an operating loss of 200 billion KRW, while SK Securities expects a 400 billion KRW operating loss.

Image of Samsung Electronics mobile application processor (AP) 'Exynos 2400' / [Image source=Samsung Semiconductor website]

The semiconductor industry is paying close attention to whether the System LSI Business and Foundry Business can increase their performance in the second half of the year. In particular, there is focus on whether there will be achievements related to Samsung Electronics' mobile application processor (AP), 'Exynos.' This is because the two business units are a kind of community of fate, sharing fortunes depending on the success of Exynos.

The mobile AP is a system-on-chip (SoC) that integrates the central processing unit (CPU), graphics processing unit (GPU), DRAM, modem, image signal processor (ISP), and more. It is considered a core component that determines device performance, often called the brain of a smartphone. In the case of Exynos, the System LSI Business designs it, and the Foundry Business manufactures it. It is then installed in Samsung Electronics' smartphones, such as the Galaxy series.

Samsung Electronics faced controversy over heat generation and performance degradation after installing the Exynos 2200 in its flagship Galaxy S22 series in 2022. This is why the Exynos was not used in last year's Galaxy S23 series. However, with the Exynos 2400 installed again in this year's Galaxy S24 series, the brand has regained its reputation. If the Exynos 2500 is used in the Galaxy S25 series next year, the operating profits of the System LSI Business and Foundry Business will likely increase as well.

Interior line view of Samsung Electronics Pyeongtaek Campus / Photo by Samsung Electronics

The Exynos 2500 is said to be mass-produced using Samsung Electronics' second-generation 3nm process. Some speculate that due to yield issues (the ratio of good products among finished products) with this process, the Exynos 2500 might not be installed in the Galaxy S25 series, but there are also opinions that nothing is confirmed yet. If the Exynos is installed in the Galaxy S25 series, mass production must occur within this year, so additional news is likely to be heard in the second half of the year.

Kim Sun-woo, a researcher at Meritz Securities, said, "Despite limited improvements in front-end demand, the System LSI Business appears to have increased sales and significantly reduced losses from 900 billion KRW in Q1 to 100 billion KRW in Q2," adding, "If the SF3 (second-generation 3nm process) yield stabilizes in the second half and mass production of key products (mobile AP) begins, a turnaround (profitability) is also possible."

Editor's NoteSemiconductors, often called the rice of modern industry. Although we hear the term daily, it can be hard to explain. Peace & Chips will make the complex concepts and overall industry trends easy to digest. Just place your spoon and enjoy.