Wednesday, November 13, 2024
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Samsung Electronics (005930.KS) has recently achieved a significant milestone in its quest to dominate the high-bandwidth memory (HBM) market. On Wednesday, it was announced that Samsung’s fifth-generation HBM3E chips have successfully passed Nvidia’s (NVDA.O) rigorous testing, paving the way for their use in Nvidia’s cutting-edge artificial intelligence (AI) processors.

This qualification marks a pivotal moment for Samsung, the world’s largest memory chip manufacturer. The approval of Samsung’s eight-layer HBM3E chips represents a crucial step forward for the company, which has been striving to compete with its primary local rival, SK Hynix (000660.KS). SK Hynix has been leading the charge in supplying advanced memory chips essential for handling generative AI workloads.

Although Samsung and Nvidia have yet to finalize a supply agreement for the approved HBM3E chips, the two companies are expected to reach a deal soon. Sources familiar with the matter anticipate that supplies will commence by the fourth quarter of 2024. However, Samsung’s 12-layer version of the HBM3E chip has not yet cleared Nvidia’s tests, according to these sources, who requested anonymity due to the confidential nature of the information.

Nvidia declined to provide comments on the matter.

In response to these developments, Samsung issued a statement indicating that it is progressing well with its product testing. The company stated, “We are in the process of optimizing our products through collaboration with various customers,” although it did not offer further details.

High-bandwidth memory (HBM) is a dynamic random access memory (DRAM) standard introduced in 2013. It features vertically stacked chips to conserve space and reduce power consumption. HBM is a vital component for graphics processing units (GPUs) used in AI applications, where it is instrumental in processing vast amounts of data generated by complex computational tasks.

Samsung has been working to pass Nvidia’s tests for both the HBM3E and its predecessor, the HBM3, since last year. The company faced challenges related to heat and power consumption, as previously reported by Reuters. Samsung has since revised its HBM3E design to address these issues, according to insiders.

Following a Reuters report in May that suggested Samsung’s chips had failed Nvidia’s tests due to these problems, Samsung rebutted the claims, asserting that they were inaccurate.

Dylan Patel, founder of semiconductor research firm SemiAnalysis, noted that while Samsung is set to begin shipping eight-layer HBM3E chips in the fourth quarter, it is still lagging behind SK Hynix, which is already advancing with twelve-layer HBM3E shipments.

On Wednesday, Samsung’s stock rose by 3.0%, outpacing the broader market’s 1.8% gain, while SK Hynix shares increased by 3.4%.

This recent approval follows Nvidia’s earlier certification of Samsung’s HBM3 chips for use in less advanced processors intended for the Chinese market, as reported last month.

The certification of Samsung’s HBM3E chips comes at a time of surging demand for sophisticated GPUs driven by the generative AI boom. Nvidia and other AI chipset manufacturers are facing challenges in meeting this demand. Research firm TrendForce predicts that HBM3E chips are likely to become the predominant HBM product this year, with shipments heavily concentrated in the latter half of 2024. SK Hynix projects that overall demand for HBM memory chips could grow at an annual rate of 82% through 2027.

In July, Samsung projected that HBM3E chips would constitute 60% of its HBM chip sales by the fourth quarter, a target that analysts believe could be achievable if the latest HBM chips receive final approval from Nvidia by the third quarter.

Samsung does not disclose revenue breakdowns for specific chip products, but estimates from a Reuters survey of 15 analysts suggest that Samsung’s total DRAM chip revenue for the first half of this year was approximately 22.5 trillion won ($16.4 billion). Analysts estimate that around 10% of this amount may have come from HBM sales.

The HBM market is dominated by three major manufacturers: SK Hynix, Micron (MU.O), and Samsung. SK Hynix has been a leading supplier of HBM chips to Nvidia, with recent shipments of HBM3E chips made in late March. Micron has also announced plans to supply Nvidia with HBM3E chips.

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