Samsung SDI Eyes Second-Half Profitability as Data Center ESS Orders Surge and Tab-less Battery Sales Accelerate
First Quarter 2026 Earnings Call, April 27, 2026
Samsung SDI has set its sights on returning to quarterly profitability during the second half of 2026, supported by a rapidly expanding order book for data center energy storage systems and surging demand for its high-performance tab-less cylindrical batteries. The company disclosed that data center-related ESS demand in the United States is expected to grow at over 30% annually through 2030, significantly outpacing the overall ESS market's 12% growth rate.
The South Korean battery and materials manufacturer reported a first quarter operating loss of 156 billion won on revenue of 3.6 trillion won, though both metrics showed sequential improvement from the prior quarter. More importantly, CFO Jae Kyun Oh stated plainly that the company expects to "turn black on a quarterly basis during the second half of this year," marking what would be a significant inflection point after several quarters of losses.
Data Center ESS Emerges as Major Growth Driver
Perhaps the most striking disclosure from the earnings call centered on the explosion of data center-related battery demand. ESS Business Team Leader Yonghui Cho revealed that data center ESS demand is projected to grow from 9 gigawatt hours in 2025 to more than 40 gigawatt hours by 2030. Within that segment, microgrid ESS systems installed directly at data center sites for independent power supply are expected to expand at an even more dramatic 60% compound annual growth rate through 2030.
The company has already secured orders to cover "a significant portion" of the next two to three years of its U.S. local ESS production capacity, providing what Cho described as "a strong foundation for stable business performance going forward." Notably, Samsung SDI is now working directly with data center operators themselves, not just traditional integrators and system companies, as cloud service providers seek to secure long-term battery supply chains.
The company signed a high-power battery supply agreement for backup battery units in data centers during the quarter and secured prismatic LFP project awards for utility ESS solutions from major U.S. customers. To meet the non-PRC entity procurement requirements under the U.S. OBBBA regulations, Samsung SDI has proactively established an LFP material supply chain, already securing supply from a key Korean cathode active material supplier with plans to further diversify sources over the mid-term.
Tab-less Batteries Set for Dramatic Growth Trajectory
The company's tab-less cylindrical battery technology is experiencing explosive adoption, particularly for professional power tools and backup battery units. VP Hoon Choi disclosed that tab-less batteries will jump from just 3% to 4% of sales last year to over 20% this year within the cylindrical portfolio. The company expects overall power tool battery sales to increase over 30% year-over-year, driven primarily by increased AI data center construction.
These tab-less products are "high-end products mainly used in high-end premium professional power tools," according to Choi, and their increased share will materially improve overall cylindrical battery business profitability. The company plans to expand tab-less applications beyond power tools to backup battery units starting in the second quarter and to hybrid electric vehicles in the second half, establishing multiple revenue streams from the technology.
In the backup battery unit market specifically, Samsung SDI significantly increased sales in the first quarter and expects to outgrow the overall market on a full-year basis. The BBU battery market is projected at $800 million this year, representing over 70% year-over-year growth, with cloud service providers now seeking to directly source battery supply rather than working exclusively through traditional packers.
European EV Business Positioning for Second-Half Recovery
Samsung SDI's European operations are preparing for improved utilization as the region's EV market shows signs of recovery. The company plans to start mass production of batteries for a new European volume model in the second quarter from its Hungary plant. Once the OEM's new model launches and sales ramp up, management expects Hungary utilization to improve to approximately 70% in the second half, up from current levels, after accounting for some line conversions to LFP and manufacturing process upgrades.
The company secured Mercedes-Benz as a customer for its prismatic batteries on April 20, meaning Samsung SDI now supplies all three of Germany's top premium automotive brands. While management acknowledged that "we will have to wait and see a bit more given the possibility of customer demand changes," the company is targeting breakeven for its EV business during the second half with the improved Hungary utilization and increased new product sales.
The European EV battery market is expected to grow by more than 10% year-over-year as key European countries reintroduce and increase subsidies, and recent oil price increases have improved consumer interest in electric vehicles, particularly in the volume segment. VP Choi noted that "the recent oil price increase has helped increase consumer interest in EV, improving EV demand, especially around the volume segment."
Electronic Materials Capitalizes on Semiconductor Boom
The Electronic Materials business delivered a bright spot with 13% year-over-year revenue growth and 15% operating income growth, driven by the semiconductor market boom and increased flagship smartphone sales. The business benefited from robust sales of semiconductor materials as the front-end market remains favorable, and display materials rebounded with increased sales of flagship smartphones by major customers.
Looking ahead, VP Ik Soo Kim of Strategic Marketing disclosed that while overall wafer input is expected to grow in the mid-single digits year-over-year, Samsung SDI aims to outgrow the market by focusing on products tied to high-end applications such as HBM and GDDR7 for AI data centers. The company is expanding sales of metal slurry and high thermal conductivity packaging materials for these advanced applications.
Samsung SDI also entered into a relationship with a new global memory manufacturer for its semiconductor packaging materials, diversifying its customer base beyond its traditional accounts. The company plans to expand sales of EUV materials for DRAM advanced node production and patterning materials for foundries while continuing to push into overseas customers.
All-Solid-State and Next-Generation Technology Development
At the InterBattery exhibition in March, Samsung SDI unveiled an all-solid-state battery for physical AI applications, which management noted "currently garner significant market interest." Beyond this, the company has developed solutions to improve the lifespan and safety of next-generation lithium metal batteries, positioning itself for future technology transitions.
The company also won a tab-less cylindrical battery project for hybrid EVs during the quarter, further diversifying its product portfolio and establishing another application for its advanced cylindrical technology beyond the existing power tool and backup battery unit markets.
Financial Position and Outlook
Samsung SDI's balance sheet shows assets of 44.5 trillion won as of the end of the first quarter, up 2.3 trillion won year-over-year after factoring in capital expenditures and increased equity value of affiliates. Total equity rose 1.3 trillion won quarter-over-quarter to 24.9 trillion won. First quarter capital expenditures totaled 589 billion won.
The company is also moving forward with plans to sell its stake in Samsung Display, though details remain under review by a committee comprised entirely of independent directors. EVP Yoontae Kim stated that while the sales timeline has not been decided, "we are working towards the goal of completing the deal within the year." The committee is considering the transaction from both company growth strategy and shareholder interest protection perspectives.
Management acknowledged continuing uncertainty in the business environment and the impact of the Iran war but noted that the company sees "limited impact on the demand side of our major businesses." With downstream demand showing improvement across battery and electronic materials businesses, Samsung SDI expects its operating loss to further narrow in the second quarter following the first quarter's sequential improvement. The company's ability to execute on its aggressive second-half profitability target will depend on the successful ramp of new European EV projects, continued strong data center ESS demand, and sustained momentum in tab-less battery adoption.
Samsung SDI Co., Ltd. Deep Dive
The Business Model and Revenue Architecture
Samsung SDI operates a dual-engine business model that effectively subsidizes the capital-intensive reality of battery cell manufacturing with high-margin specialty chemicals. The primary revenue driver is the Energy Solutions division, which manufactures lithium-ion secondary batteries spanning electric vehicles, energy storage systems, and micro-mobility applications. Rather than adopting a vertical integration strategy that reaches upstream into raw mining, Samsung SDI operates structurally as a tier-one technology supplier. It generates revenue through long-term, multi-year supply agreements for its large-sized prismatic and cylindrical cells, effectively locking in automotive original equipment manufacturers for the five to seven-year lifecycle of a vehicle platform. This structure provides long-tail visibility on volumes, albeit with margins that are structurally vulnerable to raw material volatility, particularly in lithium, nickel, and cobalt. To mitigate commodity price shocks, the company heavily utilizes pass-through pricing mechanisms in its automotive contracts.
The secondary, yet strategically vital, segment is the Electronic Materials division. This unit produces semiconductor packaging materials, photoresists, and display materials such as organic light-emitting diode components. While Energy Solutions commands the vast majority of the top line, Electronic Materials acts as the corporate cash cow. It routinely generates double-digit operating margins and operates with significantly lower capital expenditure requirements than gigafactory construction. The reliable free cash flow from these advanced materials functions as an internal hedge, providing a critical margin buffer during cyclical downturns in automotive battery demand and helping to self-fund the aggressive research and development required for next-generation battery chemistries.
Competitive Landscape: Customers, Rivals, and the Supply Chain
The company’s customer architecture is heavily skewed toward the premium automotive segment. Samsung SDI has historically prioritized high-performance, high-energy-density cells over low-cost volume contracts. Its foundational clients include BMW, Audi, and Rivian. First-quarter 2026 developments further entrenched this premium positioning, as the company secured a multi-year supply agreement with Mercedes-Benz, completing a sweep of the major German premium automakers. In North America, growth is anchored by extensive joint ventures: StarPlus Energy with Stellantis, which is bringing 67 gigawatt-hours of capacity online across two plants in Indiana, and a dedicated 36 gigawatt-hour prismatic cell facility in New Carlisle alongside General Motors.
In the competitive arena, Samsung SDI faces a bifurcated threat matrix. On the global stage, Chinese behemoths CATL and BYD dictate the pricing environment. Utilizing massive scale and domestic supply chain dominance, these competitors have commoditized the lower-to-mid-tier electric vehicle market through lithium iron phosphate chemistries. Domestically, Samsung SDI competes fiercely against LG Energy Solution and SK On. While LG Energy Solution operates with a broader, volume-heavy global footprint and SK On struggles with aggressive debt-funded expansion, Samsung SDI has deliberately positioned itself as a margin-focused boutique operating at gigawatt scale. In the supply chain, Samsung SDI relies on specialized chemical processors for its active materials. Recognizing the geopolitical vulnerability of Chinese cathode reliance, the company has recently cultivated deeper ties with domestic suppliers, highlighted by a landmark 1.6 trillion won agreement with South Korean materials firm L&F to secure non-Chinese lithium iron phosphate cathode materials for the North American market.
Market Share Dynamics and Strategic Positioning
Market share data reveals the deliberate nature of Samsung SDI's strategy. As of early 2026, the company commands approximately 4.5 to 5.0 percent of the global electric vehicle battery market, placing it sixth worldwide behind the Chinese volume leaders and its domestic rival LG Energy Solution. However, this blended figure obscures the company’s real stronghold: it maintains an estimated 15 percent market share in the premium, high-nickel prismatic cell segment. Management has consistently accepted aggregate market share erosion in the passenger electric vehicle space to avoid margin-crushing price wars in the entry-level tier.
Conversely, in the specialized energy storage system and artificial intelligence infrastructure segments, Samsung SDI is a dominant force. The company currently holds an estimated 50 percent global market share in the production of battery backup units utilized by hyper-scale cloud service providers. As data center power requirements have surged, this specific market is compounding at over 70 percent year-over-year in 2026. By dominating the high-margin, mission-critical infrastructure space, the company has engineered a strategic offset to the cyclical weakness and intensifying commoditization currently plaguing the passenger electric vehicle market.
The "Super Gap" Competitive Advantage
The core of Samsung SDI’s competitive moat is its self-described "Super Gap" technological strategy, which prioritizes chemical engineering, yield optimization, and product safety over sheer manufacturing scale. The company’s flagship P6 prismatic cells feature a cathode composition exceeding 91 percent nickel, paired with a proprietary silicon-carbon nanocomposite anode. This specific architectural pairing delivers class-leading volumetric energy density while significantly reducing reliance on expensive and ethically fraught cobalt.
Beyond chemistry, Samsung SDI possesses a structural advantage in manufacturing discipline and balance sheet management. The company’s defect rates are industry-leading, fortified by the integration of artificial intelligence-driven smart factory protocols that have improved yields by approximately 15 percent on new lines. This translates into a virtually spotless recall record, a critical factor for premium automotive partners where a thermal runaway event poses catastrophic brand risk. Furthermore, while peers like SK On have leveraged their balance sheets to the breaking point to fund global expansion, Samsung SDI maintained a debt-to-equity ratio well under 22 percent going into the current industry downturn. This fiscal conservatism has preserved the strategic flexibility required to outspend rivals on next-generation research despite cyclical revenue shocks.
Industry Crosscurrents: Opportunities and Threats
The prevailing threat to Samsung SDI is the rapid "LFP-ization" of the global automotive market. As electric vehicle adoption crosses the chasm from early adopters to mainstream consumers, price parity with internal combustion engines has become the defining battleground. Automakers are increasingly opting for cheaper, structurally safer lithium iron phosphate batteries over high-nickel chemistries, directly threatening Samsung SDI’s core profit engine. Additionally, geopolitical volatility and shifting regulatory frameworks surrounding the US Inflation Reduction Act and European local-content mandates force the company into capital-intensive regionalization, duplicating supply chains to remain compliant.
The primary opportunity, and the catalyst driving the company's 2026 turnaround, lies in the structural electrification of industrial infrastructure. The stagnation of the electric vehicle market has coincided perfectly with the explosive power demands of artificial intelligence data centers. Energy storage systems and uninterruptible power supplies have transitioned from a niche ancillary revenue stream into a primary growth vector. With utility-scale storage deployments compounding rapidly, Samsung SDI is aggressively repurposing idle electric vehicle cell capacity toward grid-scale storage, mitigating stranded asset risk while capturing a market that is fundamentally less price-sensitive and more focused on longevity and thermal stability.
Next-Generation Growth Engines
To defend its technological premium, Samsung SDI is commercializing several pivotal architectures. The first is the 46-series cylindrical cell, specifically the 4680, 4695, and 46100 formats. While competitors have struggled with manufacturing yields on large-format cylindrical cells, Samsung SDI initiated mass production in early 2025. These cells feature a tabless design that reduces internal electrical resistance by 90 percent, allowing for ultra-fast charging and superior thermal management. Management expects tabless cylindrical products to scale from 3 percent of cylindrical sales in 2025 to over 20 percent by the end of 2026, targeting hybrid electric vehicles and premium power tools.
Further out on the horizon is the commercialization of all-solid-state batteries, targeting mass production in 2027. Samsung SDI’s prototype utilizes an oxide and sulfide-based solid electrolyte paired with an anode-free design, utilizing a highly engineered 5-micron silver-carbon composite layer to prevent lithium dendrite formation. This architecture achieves a volumetric energy density of 900 watt-hours per liter and a gravimetric density of 500 watt-hours per kilogram, nearly double the capacity of current commercial lithium-ion cells. Concurrently, shedding its historical aversion to lithium iron phosphate, the company is standing up dedicated lithium iron phosphate production lines in Ulsan and Hungary. Slated for 2026 and 2027 operations, these cells are heavily optimized for the North American utility-scale energy storage market rather than engaging in a futile price war in the automotive sector.
Disruptive Threats from Adjacent Technologies
The battery industry is acutely vulnerable to chemical obsolescence, and new entrants pose credible threats to the established lithium-ion hierarchy. The most pressing disruption originates from the commercialization of sodium-ion technology by Chinese market leaders. CATL’s aggressive rollout of high-capacity sodium-ion batteries specifically targets the low-cost energy storage and micromobility sectors. Sodium is globally abundant, drastically cheaper than lithium, and performs exceptionally well in sub-zero temperatures. If sodium-ion energy density improves at its current trajectory, it could structurally displace the lower tier of Samsung SDI’s lithium-ion energy storage business.
Additionally, the rapid evolution of structural cell-to-pack architectures, such as BYD’s Blade Battery 2.0, represents a significant threat. By eliminating modular packaging, these designs allow lower-energy-density chemistries to match the pack-level performance of high-nickel cells. This engineering bypass threatens to erase the premium that automakers are willing to pay for Samsung SDI's high-density prismatic cells, compressing margins across the industry.
Management Track Record and Capital Allocation
Under the leadership of CEO Yoon-ho Choi, management’s track record is defined by a steadfast commitment to "qualitative growth." During the euphoric electric vehicle capacity expansion of the early 2020s, Samsung SDI was frequently criticized by analysts for being overly cautious compared to its domestic peers. However, this measured approach proved prescient when the global electric vehicle winter arrived in 2024 and 2025. The company did record a massive 1.7 trillion won operating loss in 2025 as the industry swallowed severe inventory adjustments and write-downs. Yet, management demonstrated ruthless agility by swiftly pivoting output to high-demand data center energy storage.
This operational pivot yielded immediate results, as evidenced by the first-quarter 2026 earnings reported today. The company shrank its operating deficit by over 64 percent year-over-year, generated 3.58 trillion won in revenue, and swung back to positive net profitability. On the capital allocation front, management makes unapologetically tough decisions to protect the balance sheet. In 2025, they suspended cash dividends for three years and executed a 2 trillion won rights issue. While painful for short-term yield investors, this capital was immediately ring-fenced to fund the US joint ventures and the solid-state battery pilot lines, ensuring the company avoids the crippling debt burdens currently paralyzing its competitors.
The Scorecard
Samsung SDI represents the most rationally managed asset in a sector historically prone to irrational exuberance. By refusing to engage in the margin-destroying volume wars dictated by Chinese state-subsidized competitors, the company has preserved the balance sheet flexibility required to survive severe cyclical downturns. The explicit strategic pivot away from passenger electric vehicle volume toward the booming artificial intelligence data center and grid-scale energy storage markets is already generating tangible financial turnarounds, highlighted by a return to net profitability in early 2026 and a dominant 50 percent share in battery backup units. The foundational specialty chemicals division further provides a unique structural hedge that pure-play battery manufacturers lack.
The investment case rests on the successful execution of its next-generation technology roadmap. If Samsung SDI can achieve commercial mass production of its 900 watt-hours per liter solid-state architecture by 2027 and successfully scale its tabless 46-series cylindrical cells, it will permanently cement its pricing power at the apex of the market. While the threat of Chinese sodium-ion disruption and the mass-market shift toward lithium iron phosphate remain formidable headwinds, the company's fiscal discipline, expanding premium automotive partnerships, and aggressive capture of the US infrastructure buildout present a highly compelling risk-adjusted profile for institutional capital.