Samsung chip biz rebounds with foundry orders from Apple, Tesla

A plaque commemorating President Donald Trump's and Apple CEO Tim Cook's announcement of Apple's investment in the U.S. is placed in the Oval Office of the White House in Washington, Wednesday (local time). EPA-Yonhap

Samsung Electronics’ foundry business is showing signs of a quick recovery from its protracted losses, as it added Apple to its list of foundry clients on Thursday after signing a sizeable chip supply deal with Tesla last week.

The back-to-back deals have eased market concerns over the sluggish utilization rates at Samsung’s semiconductor plants in Texas. With volume production of the newly ordered chips set to begin next year, Samsung’s foundry competitiveness is expected to strengthen further, helping the tech giant recover from a slowdown in profitability.

Upon announcing its $600 billion investment plan into the United States, Apple said in a press release Thursday that Samsung will supply chips from its production plant in Austin, Texas, for Apple products, including iPhones.

“Apple is also working with Samsung at its fab in Austin, Texas, to launch an innovative new technology for making chips, which has never been used before anywhere in the world,” the release read. “This facility will supply chips that optimize power and performance of Apple products, including iPhone devices shipped all over the world.”

Samsung Electronics' ISOCELL image sensors / Courtesy of Samsung Electronics

Apple did not elaborate further about the partnership, and Samsung declined to comment on matters related to its clients. However, industry officials and analysts are assuming that the partnership is for the complementary metal-oxide-semiconductor (CMOS) image sensor, which is a semiconductor that converts light into electrical signals, serving as the eye of an imaging device.

Analysts have been expecting that Samsung will begin supplying CMOS image sensors to Apple starting next year. Kiwoom Securities analyst Pak Yu-ak said in a July 21 report that Samsung foundry will narrow its operating losses, backed by “the planned mass production of CMOS image sensors for the iPhone 18 in 2026, and the addition of new clients such as Tesla.”

Samsung’s Austin chip plant was established in 1996 and has two fabs in it. The fabs initially were built for memory chips, but the firm diversified its portfolio in recent years to cover system semiconductors for communication modules and cars.

Samsung Electronics' semiconductor plant in Austin, Texas / Courtesy of Samsung Electronics

Reportedly, Samsung has recently decided to convert part of its S1 foundry line in Austin for the production of CMOS image sensors. So far, Samsung’s ISOCELL image sensor products have been manufactured at its facilities in the Gyeonggi Province cities of Hwaseong and Pyeongtaek.

The global CMOS image sensor market has been dominated by Japan’s Sony, which held more than 50 percent of the market as of last year. Samsung ranked second with a 15.4 percent share. Apple has been fully relying on Sony’s CMOS image sensors.

Samsung has been expanding its presence in the smartphone CMOS image sensor market in recent months, supplying its new ISOCELL JNP image sensor for Xiaomi’s latest smartphone, the Civi 5.

The deal is also significant in that Samsung has secured a large-scale chip foundry contract from another major U.S. tech company, following its recent deal with Tesla. Last week, Tesla signed a $16.5 billion agreement to source next-generation AI6 chips from Samsung, with CEO Elon Musk saying the chips will be fabricated at Samsung’s Taylor fab and the “actual output is likely to be several times higher.”

“While the (company’s recent earnings) numbers were generally underwhelming, in our view, we believe major downside from here is likely limited, with the solid conventional memory pricing and meaningful recovery in HBM we expect in the third quarter of this year, as well as foundry utilization set to improve with increasing order wins,” Goldman Sachs said in an Aug. 1 report.

The latest deal also bears significance as it restored ties between Samsung foundry and Apple. Samsung previously manufactured application processors (APs) for iPhones, namely the A9 chip for iPhone 6S, but the U.S. tech giant has since outsourced nearly almost all of its APs to Taiwan’s TSMC.

U.S. President Donald Trump and Apple CEO Tim Cook shake hands as they present Apple's $100 billion investment in U.S. manufacturing in the Oval Office at the White House in Washington, Wednesday (local time). Reuters-Yonhap

Uncertainties remain over tariff

As Samsung is set to produce chips for Apple in the U.S., the company’s chip business is expected to face less exposure to the 100 percent tariff announced by U.S. President Donald Trump on Thursday.

“We’ll be putting a tariff of approximately 100 percent on chips and semiconductors,” Trump said. “But if you’re building in the United States of America, there’s no charge. Even though you’re building and you’re not producing yet, in terms of the big numbers of jobs and all of things building, if you’re building, there will be no charge.”

Before Trump’s announcement, Korea was expecting a 15 percent tariff on chip exports to the U.S., because Washington promised most-favored-nation status on Korean imports. This means that the rate on Korean chips will match the rate applied to those from European Union, which recently agreed to a 15 percent tariff ceiling.

Citing this, Minister of Trade Yeo Han-koo said during a radio interview on Thursday that Samsung and another Korean chip giant, SK hynix, will not be subject to the 100 percent tariff, stressing that “whether it’s 100 percent or 200 percent, it doesn’t matter.”

Analysts say that Korean chip makers can claim tariff-free status, citing their investments in the U.S. Along with Samsung, which is now building fabs in Taylor, SK hynix is investing $3.87 billion to build a chip plant in Indiana.

“Trump said that even if companies are not producing in the U.S. right now, they will be exempted from tariffs if they have committed to building production facilities there,” Samsung Securities analyst Lee Jong-wook said. “Samsung can also claim tariff exemptions by highlighting its fabs in Austin and Taylor.”

Samsung Electronics' semiconductor plant in Taylor, Texas / Courtesy of Samsung Electronics

While chips that will be supplied to Apple and Tesla will be produced in the U.S. and therefore not subject to tariffs, uncertainties remain over Samsung’s flagship memory chip business.

Memory chips are mostly manufactured in Korea and then shipped to the U.S. after back-end processing or assembly in third countries. According to data from the Korea International Trade Association, memory chips accounted for just 0.4 percent of Korea’s total exports to the U.S. in the first quarter of this year.

Since it remains unclear whether Trump's tariff exemption pledge for companies investing in the U.S. will also apply to products that include Korean-made components, industry officials say the situation still needs close monitoring.

“Trump's announcement offered a potential way of avoiding tariffs on finished goods and eased concerns over weakening demand, but it falls short of clearing all uncertainties, as some key details were left ambiguous,” Lee, the analyst, said.