Samsung Electronics shares extend gains after Tesla deal, but challenges remain
Analysts said the agreement could bolster the company's unprofitable contract manufacturing business, but Samsung faces challenges in securing additional large customers both for logic chips and memory chips where it struggles against TSMC (2330.TW), opens new tab and SK Hynix (000660.KS), opens new tab.
"This new deal breathes some much-needed life into the business and may signal the start of a turning point for Samsung, but its memory business will need to make considerable progress too," Ben Barringer, global technology analyst at Quilter Cheviot, said.
Samsung Electronics, the world's top memory chip maker, has suffered delays in supplying the latest high-bandwidth memory (HBM) chips to key U.S. customer Nvidia (NVDA.O), opens new tab, a setback that has dented its profits and weighed on its stock.
In its "foundry" or contract manufacturing business, where it manufactures logic chips designed by customers, Samsung remains a distant second to market leader TSMC.
"Whether this will open the door for additional large customers will depend heavily on its execution," Barringer said.
Shares of Samsung recovered from early losses to close 0.3% higher on Tuesday, lagging the broader market's (.KS11), opens new tab 0.7% gain. The shares were down more than 2% earlier in the session after surging nearly 7% on Monday, following the Tesla deal.
Meanwhile, Samsung Electronics Chairman Jay Y. Lee departed for Washington on Tuesday. A Yonhap News Agency report said he was expected to support trade talks between South Korea and the U.S. but a company spokesperson, when contacted by Reuters, described it as "business trip", with no further details.
While South Korea has been promoting partnerships in chips and shipbuilding with the U.S., a trade official said the Tesla deal was unrelated to ongoing trade talks aimed at reducing U.S. tariffs. Analysts, however, said the deal could enhance prospects for Samsung's investments in its Texas-based new chip factory.
Tesla CEO Elon Musk said late on Sunday that Samsung's new chip factory in Taylor, Texas, would make the auto company's next-generation AI6 chips, likely to be used in self-driving cars, humanoid robots and data centers, without elaborating on the timing of the production.
The deal comes as Samsung has struggled to win major customers for its new Texas factory, partly due to low production yields of its cutting-edge chips.
"There also has to be a chance that the company was able to strike the long-term deal on favourable terms, given that Samsung needed to prove its contract manufacturing capabilities," said Russ Mould, investment director at AJ Bell.
The long-term supply deal for a key technology from a U.S. factory would "lessen the risk of supply-chain dislocations or tariff friction," he said.
"Samsung now needs to prove it can deliver in the right volume to the right quality for what is likely to be a demanding customer."
While the deal is "more about securing the longer-term future, we won't see these in cars for at least a year or two," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
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Specs Independent rating: 6/10 Independent rating: 9/10 Pros: Now rides better, super quiet, the best tech, efficient Cons: Still a firm ride, others do quality better, no Apple CarPlay or Android Auto Price range: £44,990 to £60,990 Battery size: 75kWh Maximum claimed range: 387 miles Miles per kWh: 4.4v Maximum charging rate: 250kW Battery, range and charging Winner: Tesla Model Y – it goes further on a smaller, more efficient battery and is backed by a convenient charging network The BYD Sealion 7 enters the arena with a larger top-spec battery at 91.3kWh, but only manages a maximum claimed range of 312 miles from it. The Sealion 7's 230kW peak charging speed is respectable, but that shorter range means that overall efficiency is just average. In contrast, the newly updated Tesla Model Y offers a maximum range of 387 miles from a smaller and lighter 75kWh battery. 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