Was Samsung’s $122 Billion Loss the Price of “Sleeping” on AI?

Artificial intelligence has rapidly developed into one of the most transformative forces in the tech industry, and staying ahead in AI is now essential for companies, particularly in the tech sector. As AI continues to drive innovation across industries, those who fail to keep pace risk falling behind.

Samsung, once a leader in technology and innovation, has long been recognized for its groundbreaking products in smartphones, semiconductors, and consumer electronics, building a global empire.

However, in recent years, the company has struggled to fully embrace the rapid advancements in AI, along with facing other serious challenges, which has led to a dramatic loss.

From Selling Groceries to Semiconductors: The Rise of Samsung as a Tech Giant

Samsung was founded in 1938 by Lee Byung-chul as a small trading company in Su-dong, South Korea. Initially, the company dealt in a variety of goods, including groceries, dried-fish, noodles, and other everyday items.

This beginning laid the foundation for what would become one of the world’s largest and most influential conglomerates.

In the late 1960s, Samsung started expanding its business. Seeing the potential in the growing electronics industry, the company founded Samsung Electronics in 1969. This shift from trading marked the beginning of its growth in technology and innovation.

Samsung’s journey in the semiconductor industry began decades ago, with milestones such as the development of the world’s first 64-megabit DRAM in 1992. Samsung Electronics started with the production of black-and-white televisions, which were among the first electronic products manufactured by the company.

This was followed by the development and production of other consumer electronics such as calculators, refrigerators, and air conditioners. These early products helped Samsung establish a foothold in the electronics market and paved the way for its expansion into more advanced technologies.

The 1990s and early 2000s marked Samsung’s transformation into a tech giant. Samsung’s global footprint in semiconductor manufacturing is extensive. Since 1996, Samsung Semiconductor has invested $18 billion in its Austin campus. 

These early products helped Samsung establish a foothold in the electronics market and paved the way for its expansion into more advanced technologies.

Samsung’s Trials: Corruption Scandals and Governance Reforms

Samsung has faced several high-profile legal issues over the years, impacting its reputation and operations. One of the most notable incidents involved the arrest of its de facto leader, Lee Jae-yong, on bribery charges.

Lee Jae-yong, also known as Jay Y. Lee, was accused of offering bribes to secure government support for a merger that would strengthen his control over Samsung. This scandal not only led to his imprisonment but also brought to light the deep-rooted issues within the company’s leadership and governance structures.

These scandals have highlighted major issues with how Samsung is run. In South Korea, family-owned conglomerates, called chaebols, like Samsung, have a lot of economic power and political influence.

This often leads to conflicts of interest and ethical problems. The legal troubles faced by Samsung’s leaders show the need for better, more transparent governance practices within the company.

The impact of these scandals goes beyond legal issues. They have also hurt investor confidence and the public’s view of Samsung. Despite these challenges, Samsung has tried to improve its corporate governance by making its practices more transparent and accountable.

However, the lasting effects of these issues continue to be a challenge as the company moves forward in the global market.

Samsung’s deep-rooted challenges are not just limited to legal issues but also extend to its corporate culture and governance. The company’s hierarchical structure and the influence of the founding family have often been criticized for fostering an environment where unethical practices can thrive.

The arrest of Lee Jae-yong was a stark reminder of the vulnerabilities within Samsung’s leadership. His involvement in the bribery scandal was part of a broader investigation into corruption at the highest levels of South Korean business and government, which also implicated former President Park Geun-hye.

The scandal exposed how closely Samsung’s success was linked to political power, raising concerns about the ethical limits of its business practices. The aftermath of these events led to a time of self-reflection and increased calls for reform within the company.

Samsung has since taken steps to improve its corporate governance, such as appointing more independent directors and enhancing compliance measures. However, the challenge remains to shift the corporate culture towards greater transparency and accountability.

In addition to governance reforms, Samsung has also faced pressure to address issues related to labor practices and environmental sustainability. The company has been criticized for its treatment of workers in its supply chain and for environmental violations.

In South Korea, the concept of “shame culture” is important in how companies like Samsung handle scandals. Unlike “guilt cultures” in Western countries, where redemption often means facing legal penalties and offering public apologies, shame cultures focus more on public perception and moral responsibility.

This cultural difference means that Samsung’s efforts to rebuild its reputation go beyond just following the law. The company also needs to regain public trust.

In February 2024, Lee Jae-yong was acquitted of financial crimes related to a contentious merger between two Samsung affiliates in 2015. This ruling could ease some of the legal troubles surrounding him, potentially allowing him to focus more on steering the company forward.

However, the acquittal also drew criticism from activists and commentators, who questioned the fairness of the legal outcome. They argued that the decision might reveal ongoing concerns about judicial independence and the influence of powerful conglomerates in South Korea.

The Rise of AI and Its Impact on the Semiconductor Industry

Despite these challenges, Samsung continues to innovate and adapt, particularly in the rapidly evolving field of artificial intelligence.

The rise of AI is profoundly transforming the semiconductor industry. AI is revolutionizing the way chips are designed and manufactured. Advanced AI algorithms can optimize chip layouts, improve design efficiency, and reduce the time required for development.

According to Deloitte Global, the demand for AI chips is strong as entering 2024, with sales expected to exceed $50 billion, making up 8.5% of total chip sales. Looking further ahead, AI chips, especially those for generative AI, could reach $400 billion in sales by 2027.

For instance, AI can automate the creation of standard cell libraries and handle complex analog circuitry, which traditionally required manual effort. This leads to higher quality and more efficient chip designs.

The surge in AI applications, such as generative AI models like ChatGPT, has increased the demand for high-performance semiconductors. Companies that can quickly adapt to these demands are thriving. For instance, Nvidia has become a leader in AI hardware, thanks to its powerful GPUs, which dominate the market for AI chips used in training and deploying models.

To keep up with the growing demand for AI-driven technologies, semiconductor companies are making substantial capital investments. For instance, companies are expanding their data centers and semiconductor fabrication plants to increase production capacity.

The future of the semiconductor industry is closely tied to the advancements in AI. As AI technologies continue to evolve, the demand for more powerful and efficient semiconductors will only increase. This presents both challenges and opportunities for the industry, as companies must innovate continuously to stay ahead.

Reasons Behind Samsung’s $122 Billion Slide: Cost of Sleeping On AI

Samsung’s struggles in the AI sector have contributed to its recent financial setbacks, despite efforts to innovate and adapt. The company’s failure to capitalize on the AI boom is a major factor behind its $122 billion drop in market value.

Missed Opportunities in AI: How Samsung Fell Behind in the AI Boom

When generative AI took off, there was an AI gold rush. Companies like Microsoft, Google, and especially Nvidia positioned themselves to take full advantage of this boom. Nvidia, which supplies the GPUs that power AI ventures, saw its value skyrocket past $3 trillion.

Unfortunately, Samsung has been on the sidelines. As a major semiconductor player, Samsung has lagged behind in its high-bandwidth memory (HBM) production. HBM chips are crucial for high-end graphic systems like the Nvidia H100, which power AI applications.

The latest generation of these chips, HBM3E, offers transfer speeds in the range of terabytes per second. In an extremely high-profile deal, Samsung was supposed to produce these special memory chips for Nvidia, which are crucial for Nvidia’s AI efforts.

However, in one of the biggest blunders of the year, reports indicate that Samsung completely fell flat. Their chips couldn’t meet the strict requirements for heat and power efficiency that Nvidia demanded.

Falling short of a major client like this comes with consequences, and for Samsung, this was costly. Meanwhile, competitors like SK Hynix have swept in to take advantage and now hold a strong lead in the HBM market. They are currently the exclusive supplier of these chips to Nvidia.

A glance at the high-bandwidth memory market shows Samsung’s flat white line consistently at the very bottom, trailing well behind its smaller competitors.

Samsung knows they are falling short. Investors were further disappointed with Samsung’s latest quarterly profit, which was $900 million below expectations. While they still made $6.78 billion, falling short by nearly a billion doesn’t exactly inspire investor confidence.

Samsung went into panic mode. Vice Chairman Jun Young-hyun recently admitted that their failure to meet market expectations has fueled concerns over Samsung’s technological competitiveness and future direction

The Chip Conundrum: Exynos and TSMC Edge

Besides, Samsung’s Exynos chips have faced criticism for overheating, poor efficiency, and performance lagging behind Qualcomm’s Snapdragon. These issues have led Samsung to prefer Snapdragon for its flagship models in key markets like North America.

The Exynos chips’ tendency to overheat and their inefficiency have been major drawbacks, causing performance degradation and higher energy consumption.

In contrast, TSMC (Taiwan Semiconductor Manufacturing Company) has gained dominance in chip production due to its higher efficiency and fewer defects. TSMC’s advanced manufacturing processes lead to better yields and more reliable chips, giving it a competitive edge over Samsung.

This efficiency has helped TSMC capture a significant market share, holding 61.7% of the market in Q1 2024, compared to Samsung’s 11%.

Samsung has faced challenges with lower yields and production delays, which have widened the gap in market share. Additionally, increasing competition from Chinese firms in sectors not affected by US sanctions has put further pressure on Samsung.

Weaker-than-expected demand for memory chips in 2024 has also contributed to the company’s difficulties.

Management Turmoil and Leadership Changes: Impact on Samsung’s Stability

The third factor contributing to Samsung’s financial struggles is management turmoil and frequent leadership changes. Over the years, Samsung has experienced numerous internal management revamps, often in response to internal issues and poor performance.

For instance, in May 2024, Kyung Kye-Hyun was removed from his position and replaced by Jun Young-hyun. These frequent changes have often lacked a clear long-term strategy, leading to instability within the company.

Investor concerns over this instability and lack of direction have further impacted Samsung’s market perception. The leadership shuffle has created uncertainty about the company’s future, affecting investor confidence and stock performance.

The internal management changes have not only disrupted operations but also highlighted the need for a more stable and coherent leadership approach.

The impact of these leadership changes is significant. Frequent shifts in management can lead to inconsistent strategic direction and hinder long-term planning.

This instability can also affect employee morale and productivity, further complicating the company’s efforts to regain its competitive edge.

Samsung’s Strategic Overhaul: Steps Toward Recovery and Growth

In response to recent challenges, Samsung has taken several strategic steps to recover and regain investor confidence.

In October 2024, Samsung Electronics issued a rare public apology after disappointing financial results. Vice Chairman Jun Young-hyun acknowledged that the company’s performance had fallen short of market expectations and emphasized Samsung’s commitment to restoring its technological competitiveness and preparing for the future.

“We have caused concerns about our fundamental technological competitiveness and the future of the company due to our performance falling short of the market’s expectations,” said Samsung Vice Chairman Jun Young-hyun. “Many people are talking about Samsung’s crisis. We, who are leading the business, are responsible for all of this.”

Jun Young-hyun also emphasized the need for a deep overhaul of the company’s organizational culture. 

“We will look again at our organizational culture and working methods and immediately fix what needs to be fixed. We will rebuild our traditional organizational culture of trust and communication. If we find problems in the field, we will expose them as they are and have fierce discussions to improve them,” he said.

To address internal challenges, Samsung has made significant leadership changes. Jun Young-hyun was appointed co-CEO and given direct control of the memory chip business, while Han Jin-man was promoted to head the foundry business. These changes are designed to streamline operations and sharpen the focus on critical business areas.

Recognizing the growing importance of AI and high-end chips, Samsung is also exploring partnerships with leading AI companies to integrate cutting-edge technologies into its products. For example, discussions with OpenAI signal a potential collaboration to bring advanced AI capabilities to Samsung’s Galaxy devices.

This focus on AI aims to position Samsung at the forefront of the next wave of technological innovation, enhancing product functionality and user experience to stay competitive in the market.

Samsung continues to invest heavily in research and development to maintain its edge. The company has committed around KRW 20 trillion by 2030 to build a new semiconductor R&D complex at the Giheung campus. This state-of-the-art facility will focus on developing next-generation semiconductors, such as 3D DRAM and V-NAND with more than 1,000 layers.

To address immediate performance issues, Samsung has also implemented a six-day workweek for its executives as part of an internal crisis management strategy. This measure is designed to regain lost ground and meet market expectations.

“Considering that performance of our major units, including Samsung Electronics Co., fell short of expectations in 2023, we are introducing the six-day work week for executives to inject a sense of crisis and make all-out efforts to overcome this crisis,” a Samsung Group executive told.