Samsung Electronics headquarters in South Korea. The company has signed a $16.5 billion contract to supply semiconductors to Tesla, according to the auto company’s Elon Musk. Photo courtesy of Samsung Electronics
South Korea’s Samsung Electronics announced it has signed a $16.5 billion, eight-year contract to supply semiconductors to an unnamed global company, noting full details will be disclosed on Jan. 3, 2033.
Just hours later on Tuesday, however, Tesla CEO Elon Musk confirmed that Tesla was the buyer and Samsung’s new Texas factory, which is being built, will produce next-generation AI processor A16 chips for Tesla.
Samsung, which rolls out A14 chips, lost out on the A15 chip deal to archrival TSMC, but managed to succeed in A16 chips. Samsung’s Texas foundry is a flagship project in its plan to invest more than $37 billion in the United States by 2030.
“Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress,” Musk said in a post on X.
The announcement prompted investors to snap up Samsung shares, and its stock price has jumped more than 11% on the Seoul bourse. The world’s largest memory chipmaker has underperformed in the stock market due to challenges in the advanced high-bandwidth memory business.
On a brighter note for Samsung’s troubled foundry business, Musk said that $16.5 billion is just the “bare minimum,” and actual output is likely to be “several times higher.”
Musk’s comments fueled speculation that Samsung could win additional Tesla orders, such as the Dojo 2 chips, which are designed to train deep neural networks used in self-driving.
“Musk’s remarks suggest that orders may expand to include Dojo 2 chips, as well,” NH Investment & Securities analyst Ryu Young-ho said in a market report.
Observers believe that the mega-sized contract will anyhow help Samsung’s foundry business turn around in terms of profitability and market share in a competition with the runaway leader TSMC of Taiwan.
According to Taipei-based business tracker TrendForce, TSMC’s first-quarter market share stood at 67.6% in the global foundry business while that of Samsung Electronics was 7.7%.
Against this backdrop, Samsung’s foundry business has suffered billions of dollars in annual losses over the past few years.
Samsung’s contract with Tesla is also expected to affect the rivalry of leading foundry companies to master next-generation 2-nanometer-based technology. TSMC’s yield rate in 2-nm process is reportedly about 70% compared to less than 60% of Samsung.
Yield rate, in semiconductor manufacturing, refers to the percentage of usable, defect-free chips produced from a single wafer.
“Thus far, Samsung has struggled to raise its yield rate in the 2-nm semiconductors to fall behind TSMC,” SungKyunKwan University semiconductor professor Choi Byoung-deog told UPI.
“The contract with Tesla demonstrates that Samsung’s 2-nm yield has substantially improved. If Samsung secures more deals with such big-tech companies as Qualcomm and Apple, it will be able to start catching up with TSMC,” he said.
Korea Advanced Institute of Science and Technology professor Kim Joung-ho agreed.
“Samsung should prove its efficiency and high yields with Tesla. Then, other major high-tech companies will show more interest in its foundry business,” Kim said in an interview.
When it comes to the share price of Samsung Electronics, experts claim that the company needs to make a breakthrough in the lucrative HBM business, which is dominated by Samsung’s local rival, SK hynix.
“If Samsung Electronics manages to supply cutting-edge HBMs to Nvidia, its share price would instantly surge,” economic commentator Kim Kyeong-joon, formerly vice chairman at Deloitte Consulting Korea, said in a phone interview.
“The three-way alliance involving Nvidia, SK hynix and TSMC is quite strong. But Nvidia may want to diversify its HBM suppliers, offering Samsung a potential opportunity. Samsung should find ways to satisfy Nvidia,” he said.
The Tesla order came shortly after Samsung Electronics Chairman Lee Jae-yong was cleared of criminal charges of accounting fraud and stock manipulation related to a merger between two Samsung units in 2015.
Earlier this month, the country’s Supreme Court acquitted Lee, putting an end to his prolonged legal battles.
