Samsung Memory Division Prioritizes AI Over Smartphone Sector Amid Rising Cost Deficit Warnings

The rapid expansion of the artificial intelligence (AI) sector has dramatically increased demand for Dynamic Random-Access Memory (DRAM), resulting in a shortage for various manufacturers across different industries. This surge in demand has led memory producers to struggle with supply constraints, with projections indicating they may only fulfill 60% of the global demand through 2027.

Among the key players in DRAM production, Samsung has prioritized its immediate financial growth over supporting its Device Experience (DX) and Mobile Experience (MX) units, which play vital roles in smartphone launches. Recent reports signal escalating concerns, with TM Roh, executive for both divisions, indicating that the MX sector might face an annual deficit, a first for Samsung since its inception.

Potential Annual Deficit for Samsung’s MX Division

Rising prices for DRAM and NAND flash memory have compelled Samsung to raise the costs of its flagship smartphone line, the Galaxy S26. This price adjustment has subsequently led to decreased consumer spending. Additionally, the company has ceased production of its LPDDR4 and LPDDR4X memory chips, opting instead for the more advanced LPDDR5 and LPDDR5X models tailored for AI customers.

LPDDR memory, a crucial component in mobile devices, has become increasingly important for the AI market, exacerbating the current shortage. For instance, NVIDIA’s upcoming AI CPU known as ‘Vera’ is expected to incorporate an astonishing 1.5TB of LPDDR5X memory. In comparison, the flagship Galaxy S26 Ultra only utilizes 12GB of this RAM, highlighting a staggering disparity of 125 times greater memory requirements for advanced AI processors.

Samsung executive warns that the company's smartphone business could witness a deficit — Proportion of DRAM Price in Smartphone Costs by Price Range / Image credits – Lee Ji-hye

While Samsung had the ability to support its MX division by producing lower-cost DRAM chips for the Galaxy S26 series, it appears that the interplay between its business segments isn’t as cooperative as one might expect. Memory supply contracts are typically established quarterly, and the price hikes observed since mid-2022 are projected to fully materialize within manufacturing expenses by the second quarter of 2026.

Counterpoint Research foresees that premium devices priced at $800 or higher will see memory costs constitute as much as 20% of their overall production costs. Thus, it is likely that Samsung’s MX division will experience financial losses prior to entering a recovery phase.

For more insights on this developing story, check the source: Money Today

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