Samsung's consumer electronics division has recently initiated strict cost-cutting measures, signaling deep financial pressure despite record profits in its chip business.
It might seem strange, right? Samsung Electronics' stock is soaring, driven by its semiconductor (DS) division, which is riding the wave of the AI boom. Yet, its Device eXperience (DX) division, responsible for the Galaxy smartphones and TVs we all know, is tightening its belt. This internal divergence is the key to understanding the current situation.
The root cause is the AI memory 'supercycle'. The explosive growth in AI technology demands vast quantities of high-performance memory like HBM. As a leader in this field, Samsung's DS division is capitalizing on this, leading to record-breaking profits.
However, this has a significant knock-on effect. First, to meet HBM demand, manufacturing capacity is diverted from conventional memory like DRAM and NAND, which are essential for smartphones. This creates a supply shortage. Second, with tight supply, the prices for this conventional memory have surged dramatically—in some cases, nearly doubling over the past year.
This puts Samsung's own Mobile eXperience (MX) unit in a tough spot. It now has to pay significantly more for the memory chips it needs to build its Galaxy S26 smartphones. This inflates the 'Bill of Materials' (BOM), the total cost of all components in a device. Compounding the problem, the global smartphone market is sluggish. Consumers are hesitant to accept higher prices, making it difficult for Samsung to pass on these increased costs.
With costs rising and revenue under pressure, the MX division's profit margins are being severely squeezed, leading to internal fears of its first-ever operating loss. The recent austerity measures, like banning business-class travel, are a direct response. They are a clear, albeit symbolic, attempt to control operational expenses and show that management is taking the profitability crisis seriously. It's a classic case of one part of a company thriving at the expense of another.
- Glossary
- Supercycle: A prolonged period of strong demand and high prices for a commodity, in this case, memory chips driven by AI.
- Bill of Materials (BOM): A list of all the raw materials, sub-assemblies, and components needed to manufacture a product, along with their costs.
- DX / DS / MX: DX (Device eXperience) is Samsung's division for consumer products like phones and TVs. DS (Device Solutions) is the semiconductor division. MX (Mobile eXperience) is the sub-unit within DX responsible for smartphones.