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Lack Of AI Rocks The Korean Heavyweight

Tech Letter

It’s not just about smartphones for Samsung anymore, their stalwart chip business is in full-blown crisis mode as they have been too slow to adapt to the artificial intelligence revolution.

It shows that if a company is asleep at the wheel, how quickly and how far they can fall back.

Samsung is Korea’s flagship tech company, and it is like the Titanic in a way because it is hard to turn around with the amount of employees it has.

Old habits die hard, and management simply wasn’t prepared for the giant leap forward in semiconductor chips.

Remember when their flagship smartphone, named the Galaxy, was the best phone in the world?

Oh, have times changed?

Concerns are piling up that the company is losing out to smaller rival SK Hynix in AI memory and failing to gain on Taiwan Semiconductor Manufacturing.

Overseas investors have sold about $10.7 billion worth of the South Korean company’s shares on a net basis since the end of July.

That hope has been snuffed out with the company admitting delays with its latest-generation HBM chips in early October, soon after SK Hynix said it had begun volume production. Meanwhile, US rival Micron Technology is stepping up efforts in HBM as well and has reported strong demand for its offerings.

Beyond its lag in AI memory, Samsung has struggled with a costly, yearslong effort to close the gap with TSMC in the foundry business. Like Intel— which has run into similar difficulty with plans to expand its outsourced chipmaking operations — the Korean firm is now moving to cut jobs and make other efforts to stop the bleeding.

Jay Y. Lee — a grandson of Samsung’s founder who was appointed executive chairman two years ago — was acquitted of stock manipulation charges in February after years of legal issues. Three months later, the company unexpectedly replaced its semiconductor division head with Jun Young-hyun, a memory chip veteran.

Samsung executives and engineers are now in full unison, heading towards the exits, looking for greener pastures, and that is a massive red flag.

It certainly isn’t a good optics when the best talent is looking for another job, but that is where we are at with Samsung.

In the short term, I don’t expect a quick turnaround because the management problems are real, and to get competitive in AI is a tall order.

Just look at AMD, they are about a year behind Nvidia, and Samsung isn’t even in the ballpark.

I expect a slow slide into irrelevancy and foreign shareholders dumping big swaths of Samsung stock backs this theory.

In the short term, readers shouldn’t get too fancy with picking AI stocks because there is a massive risk to the downside, considering how expensive the equity market is right now.

Samsung won’t be the last company to be swept up by the dustbin of tech firms.

In the U.S., it is clear which companies are behind and which are leading.

Microsoft is definitely one to buy the dip on.

I definitely envision at least one fiercer rally in AI stocks as we cruise past the U.S. election.

 

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