Memory boom squeezes Samsung Galaxy profits as component costs surge
Rising component costs and surging memory prices are hitting Samsung's mobile division, even as memory chip sales hit record highs.
Samsung Electronics finds itself caught in a bizarre operational paradox. While the tech giant is riding a wave of record-breaking memory chip sales, those very same chips are aggressively eating into the profits of its flagship Galaxy smartphone division.
According to a report by The Korea Herald, the surge in memory prices is driving the company toward a massive projected third-quarter operating profit of 107.4 trillion won (approximately USD 78.8 billion). However, this windfall in the semiconductor sector is being offset by a deepening deficit in the mobile and networks business, with brokerages estimating losses between 900 billion won and 1.9 trillion won during the same period.
The Pricing Dilemma: Protecting Market Share
The financial strain comes despite steady shipments and robust consumer interest in Samsung's hardware. While average selling prices for smartphones rose by nearly 3 per cent, this increase was insufficient to offset the skyrocketing expenses of the components inside the devices.
Samsung's leadership has been hesitant to pass these costs directly to the consumer. Earlier this year, during the launch of the latest foldable devices in London, Samsung co-CEO Roh Tae-moon addressed the issue, stating, “We will not pass the full (cost) increase on to consumers.”
This strategy of cost absorption has had visible consequences for consumers in other areas. While the new Galaxy Z8 series saw a massive 1.44 million preorders in South Korea, the company was forced to hike retail prices on seven-month-old Galaxy S26 devices. In South Korea, prices rose by nearly 150,000 won, while in the United States, increases ranged between USD 100 and USD 200.
The AI Factor and the Memory Surge
Market analysts point to a fundamental shift in the semiconductor landscape as the primary driver of this crisis. The explosion of Artificial Intelligence (AI) infrastructure has fundamentally changed the demand for memory.
- High-Bandwidth Memory (HBM): Massive demand from AI data centres.
- Server DRAM: A significant need for large amounts of standard server DRAM to support AI workloads.
- Capacity Diversion: Chipmakers are diverting manufacturing capacity toward these high-demand products, making standard memory more expensive.
The impact on smartphone manufacturing is staggering. Data from Counterpoint Research indicates that for a representative premium smartphone, the share of memory in total component costs climbed to 43 per cent in the third quarter, a massive jump from just 14 per cent a year earlier.
A Structural Challenge for Samsung
Analysts suggest that Samsung's heavy reliance on low- and mid-tier handsets makes it particularly vulnerable to these price swings. While Apple captured 49 per cent of global smartphone revenue in the second quarter, Samsung captured just 16 per cent, reflecting a business model that prioritizes volume and market share over high-margin luxury sales.
“For Samsung, which relies on low- and mid-priced models to defend shipment volumes and market share, persistently high memory prices are bound to weigh on profitability,” noted Kim Rok-ho, a semiconductor analyst at Hana Securities.
Even though Samsung manufactures its own memory, experts warn that being a producer does not guarantee cheap access during periods of extreme demand. As one analyst noted, “Making memory yourself and obtaining it cheaply are two different things.”
A Samsung representative noted that the rising costs are an industry-wide issue, as the Galaxy division sources memory from multiple suppliers. The long-term concern for the tech giant is whether it can maintain profitability once the initial excitement of new product launches fades.