Samsung Electronics is again facing speculations that it may spin off its foundry business from the broader semiconductor division, amid concerns over the same conflicts of interest that drove Samsung Biologics to split its biosimilar business and contract drug manufacturing.

Last week, Samsung Biologics, the biotech arm of Samsung Group, announced it will spin off its biosimilar subsidiary Samsung Bioepis into an independent entity. Once the deal is completed, Samsung Biologics will only retain its contract development and manufacturing organization, a strategic move aimed to address growing customer and investor concerns about potential conflicts of interest in its competing business lines.

A similar conflict of interest conundrum has long weighed on Samsung Electronics’ Device Solution division, which houses three distinct yet interconnected semiconductor operations under one roof: memory chips, foundry and System LSI. While the foundry manufactures chips for fabless companies, System LSI is responsible for designing logic chips, including Samsung’s own Exynos.

This dual role as both a chip designer and a manufacturer has raised concerns over possible technology leakage and inherent conflicts of interest for years.

“Trust is critical in the foundry business," said an industry source who requested anonymity. "For fabless companies like Nvidia and Qualcomm that don’t manufacture their own chips and rely on foundries, there's always concern that sensitive design data could be exposed to competitors. Spinning off the foundry business would reduce these risks and make Samsung more competitive."

Many market analysts have been calling on Samsung to carve out its foundry unit, arguing that organizational independence would help the company respond quickly to clients’ demands and scale faster to keep up with technological advancement.

Even the conglomerate’s financial subsidiary Samsung Securities, recommended that Samsung spin off the foundry and list on the US market in a 2022 report.

The broader semiconductor industry is also moving away from integrated device manufacturer models like Samsung -- where a single company handles both chip design and manufacturing -- toward a more specialized structure such as a fabless-foundry partnership. A fellow IDM Intel is also reportedly exploring a similar path, considering spinning off its foundry unit, potentially as a joint venture with TSMC.

Another factor driving the spinoff discussion is financial. Analysts say Samsung's underperforming foundry unit is dragging down Samsung Electronics' bottom line.

In the first quarter of 2025, Samsung's DS division reported revenue of 25.1 trillion won ($18.17 billion) and an operating profit of 1.1 trillion won, down 42 percent on-year and marked the third consecutive quarter of decline. This figure falls far short of the 7 trillion won profit posted by smaller chipmaking rival SK hynix posted during the same period.

While Samsung does not disclose performance by specific business unit, industry sources estimated that memory chip operations posted around 3 trillion won in operating profit, which was offset by 2 trillion won losses in System LSI and foundry.

This sluggish performance of its non-memory chip units strengthens the argument for a spinoff, yet paradoxically, this same weakness makes near-term divestiture less feasible.

“In principle, Samsung’s spinoff would be ideal, similar to TSMC, whose specialization in foundry services has earned trust from customers,” said Lee Jong-hwan, a system semiconductor engineering professor at Sangmyung University. “But right now, Samsung foundry remains in the red, and splitting off under these conditions would be meaningless. The company must first return to profitability and then consider a spinoff when it’s ready. It's too early for now."

Given the capital-intensive nature of the foundry business, any separation would require a stable revenue stream and securing major clients, both of which Samsung currently lacks, observers say.

If Samsung were to spin off its foundry unit, it would lose key advantages of operating under the umbrella of Samsung Electronics. Despite continued losses, the foundry has managed to stay afloat and conduct large-scale investments, largely due to the tech giant’s strong earnings from its memory and consumer electronics businesses, including smartphones.

Amid growing speculation, Samsung is not considering a spinoff of its foundry unit at this time, according to a source familiar with the matter.

Even Samsung Electronics Chair Lee Jae-yong appears reluctant on the idea. “We are hungry to grow the business. Not interested in spinning (them) off,” Lee told Reuters last October in the Philippines, when asked whether the tech giant is considering spinning off the foundry.

Professor Lee noted that Samsung envisions becoming a successful IDM capable of excelling in both memory and non-memory. In an era where AI chips are reshaping the semiconductor industry, Samsung could gain a competitive edge if it can develop and produce AI critical high-bandwidth memory chips entirely in-house.

"Samsung first needs approval from Nvidia for its HBM chips to become a trusted AI chip supplier," said Professor Lee. "If that happens everything changes. But until then, the priority is profitability. Only after that can a spinoff or any kind of restructuring make strategic sense."

By Ahn Sung-mi (sahn@heraldcorp.com)