According to reports, Tesla and Samsung Electronics have inked a significant chip supply agreement valued at $16.5 billion through 2033. The action is intended to help Samsung’s faltering contract chip manufacturing division, which is up against fierce competition from TSMC.
Inside the $16.5 Billion Agreement: What We Know So Far
In the midst of trade negotiations, analysts say the agreement might lower losses and improve South Korea-US tech ties. Elon Musk, the CEO of Tesla, announced on 28 July that the US automaker has agreed to purchase semiconductors from Samsung Electronics. This agreement is anticipated to support the South Korean tech giant’s struggling contract manufacturing division.
Unnaming the customer, Samsung revealed on 26 July that it had signed a $16.5 billion chip supply agreement with a significant international corporation. It stated that the client had asked for confidentiality on the specifics of the agreement, which is set to expire in 2033. Reuters was informed by three people with knowledge of the situation that Tesla was the buyer of the deal.
Why the Deal Matters for Samsung’s Foundry Division?
Samsung is currently experiencing increasing pressure in the artificial intelligence chip manufacturing industry, as it is lagging behind competitors like TSMC and SK Hynix. This agreement is in response to this pressure. Its earnings and stock price have suffered greatly as a result of this delay.
Through its foundry division, Samsung, the leading memory chip manufacturer in the world, also produces logic chips that are custom-designed by clients. According to Kiwoom Securities analyst Pak Yuak, the most recent agreement will assist in lowering losses at Samsung’s foundry division, which he calculated totalled more than ₩5 trillion ($3.63 billion) for the first half of the year.
Geopolitical Stakes: Strengthening US–South Korea Tech Ties
According to analysts, Samsung has had trouble keeping important customers from switching to TSMC for cutting-edge processors. Among TSMC’s clients are Apple, Nvidia, and Qualcomm. The Samsung-Tesla agreement is also important for South Korea, which is looking for U.S. shipbuilding and chip collaborations as it makes desperate attempts to negotiate a trade agreement that would remove or drastically cut possible 25% U.S. tariffs.
Samsung’s Chip Struggles: Can This Deal Turn Things Around?
According to BNK Investment & Securities analyst Lee Min-hee, Samsung is struggling to increase manufacturing yields of its most recent 2-nanometre technology; therefore, it is unlikely that the order will incorporate the state-of-the-art technology.
In contract manufacturing, Samsung has been losing market share to TSMC, highlighting the technological obstacles the company must overcome to become proficient in advanced chip fabrication and draw in customers like Apple and Nvidia, analysts said.
It’s unclear how the order will impact Samsung’s plans to begin production at its new Texas factory, which has been postponed due to the company’s inability to attract big clients.
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