Samsung Electronics has forecast that the global semiconductor shortage is likely to continue until 2028, underscoring the growing demand for memory chips driven by artificial intelligence (AI) and large-scale data centres. Alongside the announcement, the South Korean technology giant revealed it has signed long-term supply agreements with several of the world's largest data centre operators.
The company also reported an extraordinary financial performance for the second quarter, with its semiconductor business posting a more than 250-fold increase in operating profit, highlighting the continued boom in AI-related chip demand.
Samsung said it has already signed supply agreements with five of the world's largest data centre companies and is in advanced discussions with five more global customers. While the company did not disclose the names of these firms, it confirmed that demand for long-term supply contracts has increased significantly.
According to Jaejune Kim, Executive Vice President of Samsung's memory business, nearly all major customers are requesting multi-year supply agreements to secure stable access to memory chips amid rising global demand.
The contracts are expected to run for at least five years and will typically include upfront payments and minimum pricing guarantees, helping both Samsung and its customers reduce risks associated with large capital investments and market volatility.
Samsung aims to lock in contracts covering nearly two-thirds of its future memory chip production, reducing its exposure to the industry's traditional boom-and-bust cycles.
Samsung's semiconductor division delivered one of its strongest quarters ever.
Semiconductor operating profit: 89.2 trillion won
Overall group operating profit: 89.5 trillion won
Total revenue: 171.5 trillion won, up 130% year-on-year
The chip business achieved an impressive 70% operating profit margin, reflecting strong pricing and demand for advanced memory chips used in AI servers and cloud infrastructure.
The company's quarterly earnings also surpassed its combined profits from the previous three years, pushing Samsung's net cash reserves to 167 trillion won by the end of June.
Despite record earnings from semiconductors, Samsung's smartphone division struggled during the quarter.
Higher memory chip prices increased manufacturing costs, resulting in the mobile business reporting a 700 billion won operating loss, marking its first quarterly loss in recent years.
Analysts noted that Samsung is becoming increasingly dependent on its semiconductor division for overall profitability.
Although Samsung delivered exceptional financial results, investor sentiment remained cautious.
The company's shares closed 0.7% lower after initially rising more than 8% during trading. Rival SK Hynix experienced an even steeper decline, ending the day down 5.6%.
Market experts believe investors remain concerned about the massive spending required for AI infrastructure and whether technology companies can sustain current levels of demand.
Recent earnings from companies like Meta Platforms and Alphabet have highlighted the growing financial burden of AI investments, adding uncertainty to the semiconductor sector despite strong current profits.
Samsung's latest earnings reinforce one clear message: AI is reshaping the global semiconductor industry. With the company predicting chip shortages through 2028 and securing long-term supply contracts with major data centre operators, demand for advanced memory chips shows little sign of slowing. However, rising infrastructure costs and growing investor concerns over AI spending suggest that while the semiconductor boom continues, the industry may also face increasing financial and competitive challenges in the years ahead.
SOURCE: REUTERS
