Spinoff or stay the course? The high-stakes question hanging over Samsung’s foundry unit.

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Spinoff or stay the course? The high-stakes question hanging over Samsung’s foundry unit.

Published: 27 May. 2025, 11:04

Audio report: written by reporters, read by AI

A flag with the Samsung logo flutters in the wind outside Samsung Electronics' offices in Seocho District, southern Seoul, on April 30. [NEWS1]

Speculation is once again swirling over whether Samsung Electronics will eventually spin off its foundry unit from the broader semiconductor division, following Samsung Biologics' move to split its biologics and drug development businesses.

Samsung Biologics announced in a board meeting Thursday that it would restructure by separating its contract development and manufacturing organization (CDMO) business from its drug development affiliate, Samsung Bioepis.

The newly formed unit, tentatively named Samsung Epys Holdings, is slated to launch in October. It will manage Bioepis, clarifying internal structure and reducing potential conflicts of interest with CDMO clients like Pfizer, AstraZeneca and Novartis.

The model of running both CDMO and drug development under one roof had advantages. Profits from the lower-risk CDMO arm helped fund the longer-term, more capital-intensive drug research and development projects.

This setup resembles Samsung Electronics’ approach in its Device Solutions (DS) division, where it maintains both semiconductor design through its System LSI unit and manufacturing via its foundry business.

Samsung Biologics' plant in Yeonsu District, Incheon [JOONGANG ILBO]

However, concerns persist among major global clients. Companies like Apple, Nvidia and Qualcomm — all fabless firms — remain wary of entrusting chip production to a foundry linked to Samsung's System LSI, a rival chip designer. Spinning off the foundry unit could ease those concerns and attract more orders.

Yoo Seung-min, head of global investment strategy at Samsung Securities, previously argued in a report that Samsung should consider spinning off its "structurally loss-making" foundry business and listing it on a U.S. stock exchange.

Still, several challenges make such a move difficult. Unlike the bio business, the foundry division lacks the maturity to operate independently. Without achieving competitive yield rates in advanced processes below 3 nanometers, the unit faces difficulties in both profitability and Big Tech client acquisition.

According to market tracker TrendForce, Taiwan's TSMC held a dominant 67.1 percent share of the global foundry market in the fourth quarter last year, up 2.4 percentage points from the previous quarter. In contrast, Samsung Electronics’ share fell one percentage point to 8.1 percent.

With orders drying up, the foundry business has weighed down the DS division’s performance. Samsung posted 1.1 trillion won ($803 million) in semiconductor operating profit in the first quarter of 2025.

Analysts estimate the memory unit alone made over 3 trillion won, meaning the System LSI and foundry businesses may have lost nearly 2 trillion won combined.

“Technology is ultimately the deciding factor,” said Kim Yong-seok, a semiconductor expert and endowed-chair professor at Gachon University. “Before considering a spinoff, Samsung Foundry must improve its yield rates.”

A company representative talks to participants about the firm's semiconductor chip ahead of the Samsung Foundry Forum and Samsung Advanced Foundry Ecosystem Forum 2024 held at Coex in Gangnam District, southern Seoul, on July 9, 2024. [NEWS1]

There are also benefits to staying within Samsung Electronics. The DS division may be a drag on orders, but for the still-maturing foundry business, it remains a pillar of support. The foundry and memory units share campuses in Hwaseong and Pyeongtaek, Gyeonggi, even sharing the very buildings that house production lines.

Samsung also markets itself as a one-stop shop offering memory, foundry and packaging — a turnkey solution that may lose appeal if the foundry goes independent.

Splitting off the foundry business would be far more complex than the recent biotech move.

“It costs over 20 trillion won to build just one foundry line,” a senior Samsung executive said.

“That’s on a different scale from bio. In the semiconductor business, where economies of scale have been maximized through massive investments, it is difficult for foundry to make capital investments on its own," the official added.

Convincing shareholders would also be a significant hurdle.

Samsung Electronics Executive Chairman Lee Jae-yong weighed in last October at the Korea-Philippines Business Forum: “We’re hungry for growth in the foundry business. But we’re not interested in a spinoff.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM KI-HWAN [[email protected]]