Can Samsung adapt to being a latecomer in HBM sector?

High bandwidth memory chips are becoming a headache for Samsung Electronics, as the world's No. 1 memory chip maker is months behind its crosstown rival SK hynix in supplying the profitable components to Nvidia, the dominant player in the burgeoning AI market.

Samsung’s fourth-generation HBM3 chips have reportedly been cleared for use by Nvidia recently, but SK hynix, the No. 2 in the memory chip market, has supplied it with more advanced fifth-generation HBM3E chips since March this year.

Whether this is an issue of technological capability is unclear. Samsung says it is “ready” to supply the more advanced chips to Nvidia, having developed both the fourth- and fifth-generation products early on. In February, the tech giant said it developed the industry's first 36-gigabyte 12-layer HBM3E.

But the world's No. 1 memory chip firm has been held by Nvidia's qualification tests, which SK hynix and Micron Technology have already passed.

“It is hard to judge from outside whether Samsung has failed in technology. But it is important to understand that HBM is a sort of customized product, and meeting the customer's requirement is the utmost priority," said Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics and Trade.

"SK hynix has been providing the HBM3 from 2022, and has a high understanding of Nvidia's needs. Samsung may need more time to learn them."

Last week, Reuters reported that Samsung had passed the Nvidia tests for HBM3 but testing for HBM3E was still underway, raising speculation that supply was imminent. Samsung declined to confirm the report.

‘No. 2 strategy’ missing

HBM chips remain a tiny part of Samsung’s sprawling memory chip business for now. Without HBM sales, the company posted operating profits of 1.9 trillion won in the first quarter of this year in the chip business alone. In the second quarter, those profits are estimated to soar to some 6 trillion won.

But eyebrows have been raised by Samsung's failure to stay ahead of the competition in the new market.

Since debuting the industry’s first HBM in 2013, SK hynix has poured considerable resources into the nascent chip technology, which has started paying off with the AI boom.

Samsung also operated an HBM development team beginning in 2015 and became the first to mass-produce early versions of HBM chips. But in 2019, the company decided to scale down its investment in the sector, citing poor profitability.

So when Nvidia sought out HBM3 to power its cutting-edge H100 GPU product in 2022, Samsung was not ready, and SK hynix beat it to getting those orders.

"The problem is that Samsung failed to become the fastest (in the HBM market)," an industry source said under the condition of anonymity.

"The company has been a 'conqueror' of the DRAM market for a decade. Now, it is experiencing the struggles of a latecomer."

Fighting back

Even though Samsung has failed to secure an early edge in HBM chips, it has no intention of ditching the lucrative market. In 2023, the global HBM market was valued at $43.6 billion. This year the market is expected to more than triple to $169.1 billion. In the DRAM market, HBM sales made up 8.4 percent last year and the figure is expected to jump to 20.1 percent this year.

“For now, Nvidia is basically the only client for the cutting-edge HBM chips. But with more AI applications emerging the demand is expected to rise," Kim said.

"Other big tech firms like Google are also jumping into compete with Nvidia and design their own AI chips. HBM is very likely to be adopted for those products as well."

Some sources say Samsung may not be in a hurry to supply the current chips to Nvidia because it has to reduce supply prices to gain an upper hand over SK hynix. Rather than catching up with its smaller rival, it could seek a “quantum leap” by focusing on the next generation of chips.

“Currently, SK hynix is supplying HBM chips at high prices to Nvidia as the sole supplier. But it is unlikely for Samsung to adopt cheaper pricing as a strategy to outpace the smaller rival,” said an industry official who wished to be unnamed.

For the sixth-generation HBM4 chips, Samsung reportedly plans to start testing the samples next year, with the mass production set for 2026. During an earnings conference call on Thursday, SK hynix hinted that it would start supplying 12-layer HBM4 in the latter half of 2025, saying it is also working on more advanced 16-layer HBM4 chips whose demand is expected to take off from 2026.

In the meantime, Samsung is expected to unveil its second-quarter earnings on Wednesday, with keen attention being paid to its HBM-specific sales and plans.