Big chipmaking deal with Tesla lifts Samsung recovery hopes

Samsung Electronics Co's surprise $16.5 billion chipmaking deal with Tesla Inc has breathed new life into a foundry business all but written off by many investors.

- SANGMI CHA

Its stock has risen 9% since news about the agreement on Monday, bringing Samsung's gains in July to over 20% and putting the stock on track for its best month in more than four years. Samsung accounted for more than half of July's gains in Korea's stock benchmark Kospi, underscoring growing investor enthusiasm.

The Tesla deal is significant as it marks a shift for the ailing foundry business — from relying on captive internal orders to deeper external engagements, Citigroup analysts said in a report. A successful implementation would boost Samsung's prospects for generating more external clients and validate its investment in a US plant.

"I think market basically paid not even zero value — negative value — on foundry business so far, and suddenly market checked and said 'OK! they still can do,'" said Young Jae Lee, senior investment manager at Pictet Asset Management Ltd, who has Samsung as the biggest position in his $831 million fund.

Once considered a serious challenger to Taiwan Semiconductor Manufacturing Co, Samsung has steadily ceded ground in the global chip race. The company, which supplies its own memory chips and produces semiconductors for clients, has struggled to fill its foundry capacity as major customers such as Apple Inc exited and its high-bandwidth memory (HBM) business has gone woefully off track.