Samsung CEO seeks multi-year chip contracts with major customers

By Hyunjoo Jin and Heekyong Yang

SUWON, South Korea, March 18 (Reuters) – Samsung Electronics co-CEO said the chipmaker is working with major customers to shift to multi-year contracts of three-to-five years to shield them from potential demand fluctuations.

Co-CEO Jun Young-hyun said the chip ‌industry is entering an “unprecedented supercycle” driven by growing investment in AI data centres, and Samsung must prepare for “various scenarios”.

“There are concerns ‌regarding overheating in investment in AI infrastructure. Accordingly, we plan to continuously seize opportunities arising from the AI cycle while preparing for various scenarios with a cautious view,” he said at ​the annual shareholder meeting in Suwon, south of Seoul.

Shareholders praised management after share prices and earnings hit record highs, but asked how long the current market boom would last.

“It is now extremely important for the chip business to minimise mid-to-long-term business uncertainties and maintain a healthy memory supply and demand environment,” Jun, who oversees the company’s chip business, said.

Shifting from the current quarterly or annual contract would improve the stability of the business by evening out the peaks ‌and troughs of the volatile industry, he said.

On Monday, ⁠South Korea’s SK Group Chairman Chey Tae-won said chipmaker SK Hynix may unveil plans to stabilise DRAM chip prices, which analysts said could involve signing multi-year contracts with customers.

Jun said Samsung expected strong demand for chips to continue this ⁠year, driven by the artificial intelligence wave, but rising memory chip prices could hit computer and mobile shipments.

“However, risk factors still persist, including uncertainties in the global macroeconomic environment such as tariff issues and cost burdens in the set business,” Jun said, referring to televisions, phones and home appliances.

Samsung Electronics shares rose 7.5%, beating ​the ​wider market’s 5% gain.

MAJOR TURNAROUND

Bottlenecks in global semiconductor supply stemming from robust demand for ​AI datacentres have curbed memory chip supply to industries from ‌cars and computers to smartphones.

Samsung shares skyrocketed to record highs this year and are up 62% since January, outperforming the wider Korean market’s 34% gain and delighting shareholders.

The performance has been driven by the global memory chip shortage that has allowed it and rivals including SK Hynix and Micron to sharply hike prices. The three companies dominate global memory chip production.

At last year’s shareholder meeting, Jun apologised for Samsung initially missing out on the artificial intelligence chip market, which had led to a share price and earnings slump, and tried to appease frustrated shareholders.

But the situation has since improved, with ‌traditional chip prices surging and Samsung narrowing the gap with SK Hynix in the ​race to develop high bandwidth memory, or HBM, chips.

He said Samsung was now a key ​partner with Nvidia in AI infrastructure, citing Nvidia’s GTC conference where ​CEO Jensen Huang announced a foundry partnership with the Korean firm and praised its HBM4 chips.

“Things cannot be better,” ‌51-year-old shareholder Oh Bong-gyu said ahead of the meeting on ​Wednesday, citing Samsung’s stock market rally. “But I ​am a little bit worried about Samsung’s labour union and its burden on management.”

Unions at Samsung have threatened to disrupt chip production as members voted in favour of a plan to strike in May amid growing frustration among employees over a pay gap with key ​rivals.

Jun acknowledged that Samsung lagged rivals on wage competitiveness ‌as sluggish chip earnings hit performance pay, but said the gap would narrow thanks to chip recovery.

SK Hynix’s average employee annual ​pay rose 58% last year from a year earlier, the company’s annual report showed.

(Reporting by Heekyong Yang and Hyunjoo Jin; Writing ​by Brenda Goh; Editing by Jamie Freed, Sam Holmes and Stephen Coates)