---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 161689
conversation_id: 1d5cd196-5f57-4b0f-882d-701d74e25082
citations: 4
created: 2026-05-31 19:58:35Z
---

# What is Samsung Electronics’s core business franchise and the key components of its operating model?

# Samsung Electronics (005930-KR) — Core Business Franchise & Operating Model

Samsung Electronics ("SEC") operates a vertically integrated electronics conglomerate organized around **two umbrella divisions — Device Solutions (DS, the semiconductor arm) and Device eXperience (DX, the finished-goods arm) — plus partially-consolidated subsidiaries Samsung Display (SDC) and Harman**. Together these comprise the global No.1 memory franchise, a top-three logic foundry, the world's largest smartphone OEM, the leading OLED panel maker, and a global auto/audio electronics business [1].

---

## 1. Core Franchise — What Samsung Actually Is

SEC's identity as a franchise is anchored in **memory leadership**:

- **Global No.1 in memory semiconductors**, holding the **largest global DRAM and NAND market share, as well as being the top vendor for logic foundry service** [1].
- The DRAM industry has consolidated to **3 major suppliers, which account for more than 94% of total DRAM market**, with Samsung the leader at roughly 43% revenue share [11].
- Key franchise pillars cited by sell-side: (i) accelerating customer inventory adjustments, (ii) growing demand from **high-value-added segments including AI**, (iii) **better product performance and cost competitiveness** driving share gains during upcycles, and (iv) **aggressive HBM capacity expansion plans** [1].

Outside memory, SEC's secondary franchises are:
- **Foundry / System LSI** — non-memory logic, with own-fab manufacturing (Samsung Foundry) and design (System LSI / Exynos);
- **DX (Device eXperience)** — Mobile Experience (MX/smartphones), Visual Display (TVs/monitors), Digital Appliances (DA), and Networks;
- **Samsung Display (SDC)** — OLED/LCD panels (effectively a captive + merchant supplier to Apple, Samsung MX, and the broader industry);
- **Harman** — connected-car/automotive electronics and audio.

Management's own framing at Samsung's Investor Forum reinforces this four-pillar structure: SEC presented growth strategies covering **"Display, our DX business, Memory and Foundry"** as its four key businesses [8], with additional commentary noting focus on **"continued growth in Samsung Electronics in the fields of Memory, Foundry and our DX businesses"** [9]. The DX umbrella explicitly contains the **"services business within DX Division"** that spans Visual Display and broader connected-device ecosystems [10].

---

## 2. Operating Model — Segment Composition (CLSA estimates, 2025E)

### 2.1 Revenue Mix (~₩316–319trn FY25E)

| Segment | Sub-segment | % of Group Revenue (2025E) |
|---|---|---|
| **DS — Semiconductor** | (DRAM + NAND + Foundry/LSI combined) | **~35–38%** [2][4] |
| | DRAM | 18% |
| | NAND | 9% |
| | Foundry / System LSI | 8% |
| **DX — Mobile (MX/NW)** | Smartphones, networks | **37%** (largest single bucket) [2][4] |
| **DX — VD/DA** | TV, monitors, appliances | **17%** [2][4] |
| **Display (SDC)** | OLED (7%) + LCD (1%) | **8%** [2][4] |
| **Harman** | Automotive electronics & audio | **4%** [2][4] |

Mobile (MX) is the **largest single top-line contributor at ~37%**, but the Semiconductor cluster (memory + foundry/LSI) is the next-largest aggregation at ~35% and is the **dominant driver of group profit volatility** [2][4].

### 2.2 Operating Profit Mix — Memory Dominates Earnings

The economics flip sharply versus revenue: **memory is the operating-profit engine** even when it is not the largest revenue line. CLSA's 2025CL OP breakdown:

| Segment | % of Group Operating Profit (2025CL) |
|---|---|
| **DRAM** | **64%** [3] |
| MX (Mobile) | 30% [3] |
| NAND | 10% [3] |
| **Foundry / System LSI** | **–18% (loss-making)** [3] |
| OLED (SDC) | 7% [3] |
| VD/DA | 3% [3] |
| Harman | 3% [3] |
| LCD | 1% [3] |
| **Total Semiconductor (sum)** | **~56%** [3] |

Key inference: **DRAM alone produces ~2× the earnings of the entire Mobile business** despite mobile generating more revenue. Foundry/System LSI is a **structural drag** (–18% of group OP in 2025CL) that the company is willing to subsidize because of its strategic role in non-memory chips.

### 2.3 Segment Profitability (CLSA 2025CL OPMs)

| Segment | 2025CL OPM |
|---|---|
| DRAM | **35.2%** [7] |
| OLED (SDC) | 11.6% [7] |
| NAND | 8.8% [7] |
| DX (MX/NW) | 8.3% [7] |
| Harman | 7.4% [7] |
| VD/DA | 1.6% [7] |
| System LSI / Foundry | **(22.2%)** [7] |
| **Group** | **10.6%** [7] |

DRAM's ~35% OPM is the firm's value driver. Foundry's deeply negative OPM (–22%) reflects underutilization at advanced nodes (2nm/3nm) and continued wafer-cost subsidization to win customer designs.

---

## 3. Operating Model — Structural Mechanics

### 3.1 Vertical Integration & "Mix-and-Match" Captive Supply
SEC consumes its own outputs across the value chain:
- SDC's OLED panels go partly into MX's Galaxy phones.
- DS supplies memory and System LSI (Exynos) chips to MX.
- VD/DA absorbs SEC's mid-tier display panels.

This captive demand smooths volume but means transfer-pricing distortion — the SOTP valuation explicitly nets out **internal-company adjustments of ~(₩29.5trn) on consolidated revenue** [7].

### 3.2 Capital Intensity & Asset Base
SEC's memory franchise rests on **enormous depreciated fab capacity** — a structural barrier built up over 30+ years that is "a huge, huge technological barrier for any new start-ups" given the capital required to replicate [11]. The DRAM industry's CapEx-to-revenue ratio has stabilized around 30% (vs. >60% historically), reflecting "**very disciplined**" supply behavior after consolidation to three players [11].

### 3.3 Sum-of-the-Parts (SOTP) Valuation Lens
CLSA's SOTP composes the operating businesses at distinct multiples reflecting their differing economics:

| Business | EV/EBITDA Multiple Anchor |
|---|---|
| DS — Memory | 3.5× — average of Hynix, Micron [5] |
| DS — System LSI / Foundry | 3.8× — **50% discount to TSMC** [5] |
| DX — Smartphone | 10.5× — **50% discount to Apple** [5] |
| DX — Network | 5.8× — average of Nokia, Ericsson [5] |
| Display (SDC) | 4.0× — 20% premium to LGD/AUO [5] |
| VD/DA | 5.0× — 10% premium to Panasonic/Whirlpool/LGE [5] |
| Harman | 4.0× — 10% premium to Mando/Hyundai Mobis [5] |

Implication: each operating segment is benchmarked against a **distinct global peer set**, indicating SEC is best understood as a holding-company structure of separately valued franchises rather than a single integrated tech business.

### 3.4 Non-Operating Investment Portfolio
A material portion of SEC's equity value sits in **listed and unlisted strategic stakes** (Samsung Biologics 31.2%, Samsung SDI 19.6%, Samsung SDS 19.6%, Samsung Electro-Mechanics 23.7%, Samsung Heavy Industries 15.2%, Cheil Worldwide 25.2%, plus unlisted) — totaling **₩43.7trn in market value, with a 30% discount applied giving ~₩30.6trn** [5]. This is part of SEC's role as a quasi-anchor in the Samsung chaebol structure.

### 3.5 Capital Returns & Net Cash
SEC carries **net cash of ~₩94trn (end-2024)** [5], a defensive moat that lets it absorb downturns (1Q25 Semi OP was only ₩1.1trn, down 62% QoQ on memory ASP weakness and continued Foundry/LSI losses of ~₩2.1trn) [6] without strategic re-direction.

---

## 4. Synthesis — How to Read Samsung's Operating Model

1. **The franchise is "memory + everything else."** DRAM is the cash machine (~64% of group OP at ~35% OPM); the rest of the portfolio is a mix of competitive but lower-margin businesses (Mobile, Display, VD/DA) plus a strategically necessary but unprofitable advanced foundry.
2. **Mobile is the volume anchor**, not the profit anchor — it provides scale (>300m smartphones/yr) and a captive demand sink for SEC's own panels and memory.
3. **Foundry is a strategic bet, not a current profit center** — running at –22% OPM and 50% EV/EBITDA discount to TSMC, but kept funded to maintain non-memory logic optionality and customer relationships (AVP, advanced packaging).
4. **The OLED/SDC franchise** is a hidden gem — 11.6% OPM, captive + merchant supply, and structurally advantaged in mobile OLED with growing IT/auto OLED exposure.
5. **Cyclicality is a feature, not a bug** — the model is designed around riding memory upcycles via depreciated fab leverage; CapEx and inventory discipline are now the swing variable rather than market share grabs.

---

**Sources**
[1] Samsung Electronics - O-PF (Treading carefully amid uncertainties) — CLSA (29 May 2025) — 607960821LinqAlpha.PDF (investment thesis)
[2] Samsung Electronics - O-PF (Treading carefully amid uncertainties) — CLSA (29 May 2025) — 607960821LinqAlpha.PDF (Figure 15, revenue mix)
[3] Samsung Electronics - O-PF (Treading carefully amid uncertainties) — CLSA (29 May 2025) — 607960821LinqAlpha.PDF (Figure 16, operating profit mix)
[4] Samsung Electronics - O-PF (Optimistic amid 2H uncertainties) — CLSA (30 April 2025) — 607957658LinqAlpha.PDF (Figure 17, revenue breakdown)
[5] Samsung Electronics - O-PF (Treading carefully amid uncertainties) — CLSA (29 May 2025) — 607960821LinqAlpha.PDF (SOTP valuation)
[6] Samsung Electronics - O-PF (Optimistic amid 2H uncertainties) — CLSA (30 April 2025) — 607957658LinqAlpha.PDF (1Q25 results)
[7] Samsung Electronics - O-PF (Weak 2Q but valuation support) — CLSA (11 June 2025) — 607961798LinqAlpha.PDF (annual earnings forecasts, OPM by segment)
[8] Samsung Electronics Investors Forum — Special Call (Ben Suh, Head of IR)
[9] Samsung Electronics Investors Forum 2023 — Special Call (Ben Suh, Head of IR)
[10] Samsung Electronics Investors Forum — Special Call (Seline Han, DX Division services business)
[11] Samsung Electronics Investors Forum — Special Call (Jin Man Han, Memory business — DRAM industry structure)

## Citations

- [8] **Samsung Electronics Co., Ltd. Presents at Samsung Electronics Investors Forum 2023, Nov-13-2023 01:00 PM** · external
- [9] **Samsung Electronics Co., Ltd. - Special Call** · external
- [10] **Samsung Electronics Co., Ltd. - Special Call** · external
- [11] **Samsung Electronics Co., Ltd. - Special Call** · external

