Samsung Electronics’ ’AA-/A-1+’ ratings affirmed by S&P Global

Investing.com -- S&P Global Ratings has affirmed Samsung Electronics (KS:005930)’ ’AA-/A-1+’ ratings with a stable outlook, projecting gradual profitability improvement over the next one to two years.

The ratings agency expects Samsung’s profitability to recover in the second half of 2025, primarily driven by improvements in the device solutions (DS) division. Recent advancements in High Bandwidth (NASDAQ:BAND) Memory (HBM) technology should enhance Samsung’s product competitiveness and attract customers facing limited supplier options.

Samsung’s operating performance has weakened recently, with operating profit of Korean won (KRW) 11.3 trillion in the first half of 2025, down from KRW17 trillion in the same period of 2024. The company has struggled to capitalize on the HBM market since the AI boom began in mid-2023, falling behind competitors.

However, S&P believes Samsung has strengthened its competitiveness through HBM4 versus HBM3E. Large end-customers facing limited supplier options and higher prices may diversify their HBM suppliers, giving Samsung an opportunity to expand its higher-margin HBM sales in coming quarters.

For conventional dynamic random-access memory (DRAM), average selling prices are expected to remain strong due to tight supply. The company’s memory chip profitability could increase as the proportion of HBM within memory rises.

S&P does not anticipate a material turnaround in Samsung’s loss-making integration and foundry businesses. Despite a recent $16.5 billion order for its latest 2 nanometer node, this contract alone will not substantially alter the competitive landscape or reduce losses in the segment.

The smartphone division is projected to deliver solid sales with steady revenue growth at low- to mid-single digits. Samsung’s display business is forecast to maintain good operating margins of about 10% over the next two years as the company expands into growing OLED TV and IT panel markets.

Samsung is expected to maintain its solid net cash position despite sizable annual capital expenditure of KRW56-58 trillion over the next two years. The company announced a KRW10 trillion share buyback plan in November 2024, with a large portion to be executed in 2025.

S&P could lower its ratings if Samsung’s competitive position weakens significantly in key businesses or if its operating margin falls below 10% on a sustained basis. Conversely, ratings could be raised if Samsung strengthens its global position in major businesses while maintaining significant cash holdings with a prudent financial policy.

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