Samsung Electronics announced that it has signed long-term agreements (LTAs) with five major data center customers, including global big tech firms, and is in the final stages of negotiations with an additional five companies. This signifies securing medium- to long-term demand for memory semiconductors (hereinafter referred to as "memory"). Amid expectations that infrastructure investment demand driven by a surge in AI server needs will lead to a prolonged supply shortage through 2028, Samsung is being evaluated for having established a stable revenue base through proactive long-term contracts and advance payments.
Kim Jae-jun, Executive Vice President of the Memory Strategy Division at Samsung Electronics, stated during the second-quarter earnings conference call held on the 30th: "We have already completed LTAs with five major global data center customers, and negotiations with an additional five large customers related to AI demand are in the final stages." He added, "It is fully achievable to meet 60% to 70% of planned capacity (production capability) through multi-year contract volumes."
Notably, this LTA significantly strengthens contractual enforceability, enhancing the stability of the agreements. Executive Vice President Kim explained, "To strengthen contractual enforcement, we included a substantial amount of advance payments in the nature of deposits as part of the contract terms, and have already received an amount equivalent to one-quarter of that total." He further noted, "For general-purpose products, a floor price has been set at a level that allows for the dispersion of future investment risks arising from market price fluctuations."
Samsung Electronics anticipates that the memory supply shortage driven by the expansion of AI infrastructure will persist for an extended period. Executive Vice President Kim stated, "It is clear that the supply-demand gap next year will widen further, and the supply shortage in 2027 will intensify compared to this year, continuing through 2028." He added, "Given that expanding supply through industry-wide capacity expansion will take considerable time, significant increases in supply are unlikely before 2028."
Facility investments aimed at meeting long-term demand are also being expanded. In the second quarter, facility investments totaled 16.8 trillion won (15.4 trillion won for the DS Division), an increase of 5.5 trillion won from the previous quarter. With expanded memory infrastructure investments including new fabs in Pyeongtaek, foundry operations are preparing to commence operations at Taylor Fab 1 in the U.S. this year and will begin construction of Fab 2 by the end of this year, with plans to start operations in Yangsan in 2030. The company also projected that a return to profitability could be achieved in the near term due to rising utilization rates for advanced foundry processes.
Additionally, Samsung Electronics resolved to declare a second-quarter dividend of 374 won per share (totaling 2.45 trillion won) for both common and preferred shares. Park Soon-cheol, Executive Vice President and CFO in charge of management support, stated, "We are thoroughly discussing shareholder return plans, including special dividends this year, as well as future policies." He emphasized, "As advance payments from LTAs and share buybacks may impact FCF (free cash flow), we will seek the optimal balance between reinvestment for future growth and shareholder returns."
Regarding discussions in some market circles about issuing American Depositary Receipts (ADRs), Executive Vice President Park drew a line, stating, "Given our strong ability to generate stable cash flows, there is no pressing need, and we are not currently reviewing this option." However, he added, "From the perspective of enhancing shareholder value over the medium to long term, we view it as one of various potential options that remains open for future consideration."
Meanwhile, Samsung Electronics reported second-quarter consolidated results for this year with revenue of 171.5 trillion won and operating profit of 89.5 trillion won. The DS Division, responsible for semiconductor operations, led the performance with revenue of 127.5 trillion won and operating profit of 89.2 trillion won.
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