Does this huge $16.5 billion order mark the start of a turnaround at Samsung Foundry?
Samsung gets a huge $16.5 billion order from Tesla, possibly signaling the start of a turnaround at Samsung Foundry.
Samsung's beleaguered foundry unit made a surprise announcement in South Korea Monday morning local time. The foundry announced that it would supply automobile manufacturer Tesla with chips until 2033. The transaction is valued at $16.5 billion and is huge for Samsung Foundry, which has been a distant second to TSMC in the business of contract chip manufacturing.
Samsung Foundry has had a longstanding problem with its yields
Samsung Foundry's yields have been well below TSMC's. This measures the percentage of dies cut from a silicon wafer that pass quality control (QC), divided by the maximum number of usable dies that the wafer could have produced. A low percentage means that not enough good chips are being manufactured, and that results in higher prices for the chips that can be used. The yield issue has cost Samsung Foundry business from big-name chip designers such as Qualcomm.
There is speculation that the San Diego-based company will use both Samsung Foundry and TSMC to dual-source the Snapdragon 8 Elite Gen 2 application processor. Samsung Foundry will use its 2nm process node while TSMC will build its version of the Snapdragon 8 Elite Gen 2 with its third-generation 3nm process.
TSMC had a leading 67.6% share of the contract chip manufacturing business in Q1. Samsung Foundry was second with a 7.7% share. The deal with Tesla could help generate more business for Samsung Foundry. Finding new clients and keeping current ones has been difficult for the Samsung unit. Kiwoom Securities analyst Pak Yuak says the deal will reduce the red ink that Samsung's foundry business has been spilling. For the first half of this year, Samsung Foundry lost more than 5 trillion won ($3.63 billion).
TSMC's client list contains some of the biggest names in tech, including Apple (its number one client), Nvidia, Qualcomm, AMD, and MediaTek. It doesn't seem likely that Tesla will require Samsung Foundry to supply it with its most cutting-edge 2nm chips. That's the word from Lee Min-hee, an analyst at BNK Investment & Securities.
Investors seem pleased by this announcement as Samsung's shares soared 6.8% on Monday, rising 4,500 Korean won ($3.45) to 70,400 Korean won ($50.68). The feeling is that with this order, Samsung Foundry may have turned a corner in a bid to become more competitive with TSMC.
The start date of the contract is July 26, 2025, and it ends on December 31, 2033. Although complete details of the contract won't be released until it ends in 2033 at the request of Tesla (this provides the car manufacturer with some privacy related to Tesla trade secrets), Tesla CEO Elon Musk did post on his X platform that Samsung Foundry's new fab in Texas will be dedicated to the production of Tesla's next-generation AI6 chip.
Tesla's Musk says that the value of the contract could end up exceeding $16.5 billion
Samsung currently makes Tesla's AI4 chip, and A15 will be produced by TSMC in Taiwan initially. Eventually, the manufacturing of this chip will move to one of TSMC's fabs in Arizona. Musk added that Tesla will assist Samsung Foundry in maximizing manufacturing efficiency. Musk said that he would walk the line to "accelerate the pace of progress." He also hinted that the value of the contract could exceed the current $16.5 billion valuation of the deal.
Samsung Foundry needed an announcement like this to boost morale after tipster PhoneArt (formerly known as IceUniverse) recently revealed that Samsung planned to use Qualcomm's Snapdragon 8 Elite Gen 2 application processor (AP) on all Galaxy S26 series phones. Originally, there was hope that if Samsung Foundry could improve its yields, it could manufacture enough Exynos 2600 APs to use that SoC on most Galaxy S26 and Galaxy S26+ units. Samsung was forced to do something similar with this year's Galaxy S25 line.
As we pointed out this past May, Samsung had to use the Snapdragon 8 Elite AP on all Galaxy S25 units. The original plan was to equip the Galaxy S25 and Galaxy S25+ in all markets excluding the U.S., China, and Canada, with the homegrown Exynos 2500 SoC. It was possibly Samsung Foundry's poor yields that resulted in the company having to use Qualcomm's chip instead. This move reportedly cost Samsung an extra $400 million that was used to buy the additional Snapdragon 8 Elite APs it needed from Qualcomm.
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