Driven by the "chipflation" sparked by the global expansion of artificial intelligence (AI) investments and intensifying geopolitical risks, the raw material burden on the electronics industry surged like a snowball in the first half of this year.

In particular, Samsung Electronics' Device eXperience (DX) division, which produces finished products, took the full blow of rising prices for semiconductors, various parts, and raw materials, leading to unavoidable profitability deterioration.

According to the half-year report released by Samsung Electronics today (August 17), the company's raw material purchase amount—excluding Samsung Display—reached 55.8338 trillion won in the first half, an increase of 4.9039 trillion won (9.6%) from the same period last year.

Among the increase, the growing cost burden of the DX division, which handles home appliances, TVs, and smartphones, accounted for the largest share.

The DX division's purchase amount increased by 2.4763 trillion won (6.3%) to 41.5392 trillion won.

Notably, the price of mobile memory, a core component, skyrocketed more than threefold (211%) compared to last year's annual average, accounting for 5.0426 trillion won in costs.

Mobile memory grew significant enough to be newly added as a separate category, detached from "others," in the first half of this year.

Due to the sharp surge in cost burdens, Samsung Electronics' DX division recorded a deficit (operating loss of 800 billion won) in the second quarter of this year for the first time since its establishment.

Samsung Electronics expects that cost burdens will enter a phase of alleviation going forward, and that business structural improvements, such as the growth of the Heating, Ventilation, and Air Conditioning (HVAC) business and AI home appliances, will bear fruit and lead to a recovery in profits.

LG Electronics (excluding LG Innotek) also reported paying 15.3091 trillion won for raw material purchases in the first half of this year.

This is an increase of 1.2656 trillion won (9%) from 14.0435 trillion won in the first half of last year.

This was due to the average price of video equipment component chips rising by 37.4% compared to the end of last year, and the average price of copper, a major raw material for home appliances, rising by 32.6% compared to the end of last year.

The display industry was also affected by rising prices for panel materials and parts.

Samsung Display's raw material purchase cost for the first half was 6.3869 trillion won, up 15.1% from the same period last year.

Flexible Printed Circuit Assembly (FPCA), used for display driving and signal transmission, became about 6% more expensive compared to last year, and cover glass for tempered glass became about 24% more expensive.

However, LG Display's raw material purchase cost was 4.3780 trillion won, down 7.1% from the same period last year.

This reflected efforts such as a business structure transition centered on organic light-emitting diodes (OLED) and cost innovation.

The electronic components industry also saw profitability deteriorate as prices of advanced materials such as copper-clad laminates (CCL) rose.

LG Innotek's raw material cost in the first half of this year was 9.1744 trillion won, a 34.2% increase from the same period last year.

Samsung Electro-Mechanics rose 21.4% from 2.1255 trillion won to 2.5806 trillion won over the same period.

It is projected that raw material price burdens will intensify further in the second half as the upward trend in memory prices continues and supply chain risks persist due to the prolonged war in the Middle East.

Market research firm TrendForce forecasted that the fixed transaction price of PC DRAM in the third quarter of this year will rise by 15% to 20% compared to the previous quarter.

This is because DRAM manufacturers have reduced the supply of PC DRAM in response to increased server memory demand from cloud service providers (CSPs).