The guardians of Samsung's Galaxy face a $16 billion nightmare

Samsung's mobile division is having a tough time of late. It's not because nobody wants to buy its phones anymore. It's just that the components used in them, particularly memory chips, have become so expensive that margins have evaporated.

A new report from Samsung Securities predicts that Samsung mobile division may post annual losses for the next three years because of this.

Samsung Securities estimates that Samsung's mobile and networks division may post an operating loss of 5.841 trillion won or roughly $3.85 billion for 2026. It may become even more painful in 2027 when the division's operating loss is expected to reach 15.209 trillion won, or roughly $10 billion.

At this rate, Samsung's mobile division would record an annual operating loss higher than the $9.88 billion loss the company's DS division posted during the height of the semiconductor downturn in 2023.

The pain won't end there. It's also estimated that in 2028, Samsung's mobile division will likely post an operating loss of 3.237 trillion won or $2.1 billion. This would bring the combined operating loss from 2026 – 2028 to a whopping 24.287 trillion won or just above $16 billion.

Without going too deep into corporate accounting, operating loss differs from net loss, as the former only measures the shortfall from core business operations, calculated by subtracting the gross profit minus operating expenses. Net loss takes into account all other expenses and revenues to arrive at a broader “bottom line” figure.

Samsung reports combined financial results for its mobile and networks division, of which the mobile division accounts for between 96-98% of the combined revenue. The majority of the operating profit for the two divisions also comes from the mobile division.

Samsung's mobile division has never been in the red so badly as it may be in these years. Even during the Galaxy Note 7 fiasco when its brand reputation took a hit, the division managed to post a 100 billion won or $66 million operating profit in the third quarter of 2026.

Insatiable AI demand has led to memory chip prices skyrocketing. This has had a vastly negative impact for consumer devices. According to some estimates, while memory chips accounted for around 14% of a smartphone's manufacturing cost in the first quarter of 2025, by the second quarter of 2026 they made up 40% of the cost.

This is before manufacturers like Samsung account for other components that have also become more expensive, like chipsets, batteries, displays, cameras, production expenses, marketing, sales, research, development, etc.

This situation isn't expected to improve in the near future. Memory chips are projected to be in short supply throughout 2027 and possibly into 2028 as well, with prices likely increasing even further. Samsung's mobile division has few options to weather this storm because there's only so much room to increase the price you pay for a Galaxy device without demand destruction.

Smartphone replacement cycles were already lengthening prior to this. People were holding on to their phones, particularly flagships, for longer. Raising prices significantly when fewer people are buying a new phone every single year will directly result in reduced sales.

Even as Samsung's mobile division faces one of worst market conditions it has ever known, the company's semiconductor division is laughing all the way to the bank. It's one of the top players in the global memory market and is making money hand over fist by selling memory chips at record high prices, including to the organization's own mobile division.

So it was hardly surprising to see that despite its mobile division underperforming, Samsung Electronics generated 171 trillion won or $113.1 billion in revenue and $59 billion in operating profit for the second quarter of this year. That's largely because its memory chip sales are through the roof.

Samsung has rewarded employees at its chip division handsomely with approximately $26.6 billion in bonuses. Every employee of that division has received an average bonus of $339,000. For some, the bonus is several times their annual salary.

Naturally, this has caused drama between the mobile and chip divisions. Workers at the mobile division weren't too happy seeing some in the organization receive life-changing sums of money while their division struggles to turn a profit largely because it is that division that's making it difficult for them to make a profit on their devices in the first place.

For the guardians of Samsung's Galaxy, the next few years are very painful. They'll continue to struggle even as the wider organization profits immensely from the memory shortage. Things may improve beyond 2028, but even that's contingent on new memory supply coming online and demand letting up.

Samsung Electronics will thrive, and the mobile division will survive and face no risk of going out of business. The next three years will just be very, very painful.