Samsung Electronics warned that its third-quarter profit would fall short of market expectations and apologized for the disappointing performance as the tech giant fell behind its rivals in supplying high-end chips to Nvidia in the growing artificial intelligence market.
The rare apology illustrates the challenges facing the company, which has been the world’s largest maker of memory chips for three decades but is struggling with growing competition in conventional and advanced chips.
Samsung said its artificial intelligence chip business with an unidentified major customer was hit by delays, while Chinese chip rivals increased shipments of conventional chips, contributing to a drop in its semiconductor earnings.
The world’s largest maker of memory chips, smartphones and TVs estimated an operating profit of KRW 9.1 trillion ($6.78 billion, or 56,631 kroner) for the three months ended Sept. 30, up from KRW 10.3 trillion (approx. 64,086 rupees) LSEG SmartEstimate.
This would compare to KRW 2.43 trillion (approximately 15,117 million rupiah) in the same period of the previous year and 10.44 trillion KRW (approximately 64,948 million rupiah) in the previous quarter.
“The earnings are a shock compared to what many analysts initially expected,” said Lee Min-hee, an analyst at BNK Investment & Securities.
“I don’t see an improvement in its earnings in the current quarter,” he said, saying it was lagging behind SK Hynix in increasing sales of high-bandwidth memory (HBM) chips to Nvidia and that its heavy exposure to the Chinese market was hurting.
Samsung’s late response to the AI chip market increases its reliance on lower-margin traditional chips, making it more vulnerable to competition from China and slowing demand for smartphones and PCs, analysts said.
High-margin chips used in AI servers are driving the chip market’s recovery after last year’s post-pandemic slump. However, Samsung lagged behind SK Hynix in supplying high-bandwidth memory (HBM) chips to AI leader Nvidia.
“We have raised concerns about our technological competitiveness, and some are talking about a crisis that Samsung is facing,” said Young Hyun Jun, vice president of device solutions, Samsung Electronics.
“These are testing times,” he said, promising to turn the challenge into an opportunity and focus on improving long-term technological competitiveness.
Samsung’s share price, which has already fallen by more than 20 percent this year, fell by 1.3 percent, which was weaker than the 0.4 percent drop in the benchmark KOSPI.
HBM chips are late
Samsung said in a statement that the start of sales of its high-end HBM3E chips to a major customer was “delayed compared to our expectations.” He did not elaborate on the problem.
Samsung said in July that it would begin mass production of the chips between July and September.
Profit fell in the company’s memory chip business as Chinese rivals increased inventories of “legacy” products and some mobile users adjusted inventories, offsetting solid demand for HBM and other chips used in servers, Samsung added.
Samsung’s contract chip business, which designs and manufactures custom chips for other companies, likely continued to lose money in the third quarter as it struggles to compete with industry leader TSMC, which counts Apple and Nvidia among its customers, analysts said.
Samsung chief Jay Y. Lee told Reuters on Monday that he was not interested in spinning off the contract chip manufacturing business as well as the logic chip design operation.
Samsung said one-time costs such as provisions for “incentives” and an unfavorable local currency also contributed to the drop in chip earnings.
Earnings in its mobile division improved from the previous quarter due to solid sales of its flagship smartphones, while earnings in its display unit rose as its customers, including Apple, launched new models.
Samsung will announce detailed earnings results on October 31.
In May, Samsung abruptly fired the head of its semiconductor division, handing the reins to Jun in an attempt to overcome the “chip crisis.”
Samsung is also laying off as many as 30 percent of overseas staff in some divisions, Reuters reported in September, underscoring the challenges it faces.
Its US rival Micron last month forecast first-quarter earnings ahead of Wall Street estimates and reported its biggest quarterly revenue in more than a decade thanks to growing demand for its memory chips used in artificial intelligence.
© Thomson Reuters 2024
(This story was not edited by NDTV staff and was automatically generated from a syndicated feed.)
