Samsung Electronics' foundry business is expected to improve its losses in the third quarter, helped by high-bandwidth memory (HBM) volumes from its memory division. That is because the memory sales are flowing into foundry revenue as the base die, the bottom layer of HBM4, is made using the foundry's logic process. It is also expanding foundry volumes to orders from external customers through turnkey contracts that bundle memory, foundry and packaging.

Industry attention is focused on how much the first results from turnkey deals have reduced Samsung Electronics' foundry losses ahead of the third-quarter earnings season, the sector said on Sept. 29. Kiwoom Securities shifted Samsung Electronics' investment point in a Sept. 23 report from a rise in commodity memory prices to expanding market share in HBM and foundry. It expects the fourth-quarter increase in commodity DRAM prices to be limited to 3 percent from the previous quarter, prompting it to change the drivers of performance. It particularly projected that the HBM and foundry units will maintain growth as sales of HBM4 and Exynos 2800 expand.

The reason memory volumes are moving to the foundry lies in HBM's structure. HBM is memory that stacks multiple DRAM layers to boost data processing speed, and the base die is the bottom chip that controls the signals of those layers. Samsung Electronics said it began mass production shipments of HBM4 in February by combining 1c DRAM with narrower circuit lines and a base die made on a 4-nanometre process, and supplied samples of the next generation, HBM4E, to customers in May.

For a memory company to make that layer itself, it needs foundry lines that produce logic chips, and among the three major memory companies, Samsung Electronics is the only one that produces logic chips. Logic chips handle computation and signal control. In HBM, they sit on the bottom layer, and the base die corresponds to the logic chip that controls signals for the DRAM stacked above, and for HBM4 it is made on the foundry's 4-nanometre process. As the share of HBM4 rises in HBM revenue, the portion of memory sales that goes through the foundry also increases.

The increase in base-die volumes was already evident in second-quarter results. Samsung Electronics' foundry business pointed to memory and HBM base-die products as factors behind revenue growth during its second-quarter earnings conference call in July. It said utilisation rates for advanced processes of 8 nanometres and below had reached the maximum level. It projected foundry revenue in the second half would rise by more than double digits from a year earlier, and it included expanding memory base-die sales among the drivers.

Base-die volumes are expected to rise further in the third quarter. Samsung Electronics projected that third-quarter HBM4 revenue will more than triple from the previous quarter and will comfortably exceed 60 percent of total HBM revenue in the second half. HBM4 makes the base die on the bottom layer using the foundry's 4-nanometre process. As HBM4 sells, the volume of base dies produced by the foundry increases as well.

Earnings improvement is also expected. Kiwoom Securities forecasts that the operating loss in Samsung Electronics' foundry and System LSI division will shrink to 3.92 trillion won this year from 6.74 trillion won last year. On a quarterly basis, it expects the loss that widened in the second quarter to narrow again to 777.0 billion won in the third quarter.

The loss that exceeded 2.0 trillion won in each quarter in the first half of last year has been moving between 700.0 billion won and 1.2 trillion won this year. That up-and-down pattern has been because there were limits to filling foundry lines with memory volumes alone. This issue is also likely to improve as it expands turnkey contracts with external customers. Samsung Electronics signed a memorandum of understanding in July with Broadcom to pursue cooperation worth more than $200.0 billion through 2030. The agreement includes supplying HBM4 and HBM4E for custom AI accelerators designed by Broadcom and applying processes of 2 nanometres and below and advanced packaging to key products.

Ultimately, the volumes that would resolve the shrinking losses are advanced-process orders from external customers. The momentum is positive. Samsung Electronics' foundry business said it won 2-nanometre projects from major CSPs (cloud service providers) and AI and HPC customers in the second quarter, and that customers had started product design. The Information reported that Anthropic is also expected to entrust Samsung Electronics' foundry with contract manufacturing of AI chips.

Third-quarter results will effectively confirm the extent to which base dies have reduced the foundry's losses. A profit turnaround, in turn, is seen as depending on whether external turnkey volumes take over the losses that base dies have already reduced. Samsung Electronics previously said during its second-quarter earnings announcement that it expects a return to profit to be possible in the near term.