Samsung’s Mobile Division Faces Historic Financial Threat as AI-Driven Memory Costs Skyrocket
Samsung Electronics, a global leader in consumer electronics and semiconductor manufacturing, is grappling with an unprecedented financial challenge. The company’s mobile division, which has long been a cornerstone of its revenue, now risks posting its first-ever net loss in its history. This crisis is not the result of declining sales or fierce competition, but rather the surge in demand for memory components driven by the artificial intelligence (AI) industry.
The Memory Component Crisis
At the heart of the issue are LPDDR5X memory and NAND storage, critical components for modern smartphones and AI hardware. These parts have seen premium price hikes due to their growing importance in AI applications. TM Roh, head of Samsung’s Mobile Division (MX), has warned company leadership that the rising costs of these components are threatening the division’s profitability.
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The financial strain stems from a fundamental shift in smartphone manufacturing costs. Historically, components like application processors and displays accounted for the largest shares of a device’s bill of materials. However, DRAM and NAND now dominate expenses. Counterpoint Research projects that RAM will represent over one-third of total manufacturing costs for budget phones by mid-2026, while even flagship devices see memory accounting for more than 20% of their build expense.
AI’s Appetite for Memory
The AI industry’s insatiable demand for high-capacity memory has exacerbated the crisis. LPDDR5X, in particular, has become a critical component for AI applications. For instance, Nvidia’s Vera AI CPU is designed to pack up to 1.5 terabytes of LPDDR5X memory. When paired with Nvidia’s forthcoming rack-scale AI platforms—each configuration featuring 36 Vera CPUs and 72 Rubin GPUs—the memory requirements are staggering. A single server setup would consume as much RAM as 4,600 Galaxy S26 Ultra smartphones, each equipped with 12GB of RAM.
This demand has forced Samsung to phase out LPDDR4 production in favor of LPDDR5, while competitors like Micron and SK Hynix are also ramping up output. Despite these efforts, Nikkei Asia forecasts that DRAM supply in 2027 may meet only 60% of projected demand, even under optimistic production scenarios.
Rising Costs and Price Adjustments
The memory shortage has forced handset manufacturers to pass increased costs to consumers. Motorola raised prices on its Moto G budget line by up to 50%, while Samsung added $50 to the Galaxy A37 and A57 mid-range models compared to their predecessors. Premium devices have also seen price hikes: the 512GB Galaxy Z Flip 7 and both 512GB and 1TB Galaxy Z Fold 7 variants carry an additional $80, while the Galaxy Tab S11 increased by $100.
Despite these price increases, Samsung’s Galaxy S26 maintains strong sales performance. However, the mobile division still faces potential losses due to memory and storage component costs that have roughly doubled.
A Divided Business Portfolio
While Samsung’s mobile division struggles, its semiconductor division is thriving. The division reportedly generated an estimated $38 billion profit in Q1 2026, more than seven times its Q1 2025 earnings. This divergence highlights how AI infrastructure investment has created winners and losers within Samsung’s business portfolio. Memory production benefits from the same market dynamics that are squeezing the mobile division.
The situation underscores a broader industry trend: the AI revolution is reshaping supply chains and profit margins across sectors. For Samsung, the challenge lies in balancing its semiconductor strengths with the growing financial pressures on its mobile division. As AI demand continues to surge, the company’s ability to navigate this dual challenge will determine its future trajectory.