Source-moneycontrol.com
Lagging in AI Chip Market
Samsung Electronics has warned that its third-quarter profits are expected to fall short of market expectations, citing challenges in its AI chip market. The South Korean tech giant has acknowledged difficulties in supplying advanced chips to AI leader Nvidia, a key player in the booming artificial intelligence market. Samsung’s inability to keep pace with rivals like SK Hynix in providing high-bandwidth memory (HBM) chips has hurt its performance. In addition, Chinese competitors have ramped up their supply of conventional chips, adding pressure to Samsung’s semiconductor division.
For the three months ending September 30, Samsung estimates an operating profit of 9.1 trillion won ($6.78 billion), which is significantly lower than the 10.3 trillion won predicted by market analysts. Although this is an improvement from the 2.43 trillion won profit reported a year ago, it represents a decline from the 10.44 trillion won reported in the previous quarter. Lee Min-hee, an analyst at BNK Investment & Securities, expressed surprise at the results, highlighting the company’s struggle to increase sales of high-margin HBM chips to Nvidia.
Challenges in the Semiconductor Sector
Samsung has been the world’s largest memory chipmaker for three decades, but recent market trends have exposed vulnerabilities in its semiconductor strategy. The delay in launching its high-end HBM3E chips to a major customer has been a significant setback, the company admitted, though it did not specify further details. This delay, along with increased competition from Chinese manufacturers in the conventional chip space, has negatively impacted Samsung’s semiconductor earnings.
Young Hyun Jun, Vice Chairman of Samsung’s Device Solutions Division, acknowledged the company’s struggle, stating, “These are testing times.” He pledged to transform these challenges into opportunities by focusing on long-term technological competitiveness. Despite efforts to regain ground in the AI chip market, Samsung remains highly dependent on traditional chips with lower margins, which makes it more susceptible to competition from China. Analysts also note that slowing demand for smartphones and PCs adds further pressure to Samsung’s profitability in the semiconductor business.
Mobile and Display Divisions Perform Better
While the semiconductor sector struggles, Samsung‘s mobile and display divisions showed some resilience. The mobile division saw improved earnings from the previous quarter, supported by strong sales of its flagship smartphones. Similarly, the display unit, which counts Apple among its key customers, benefited from new product launches. However, Samsung’s contract chip manufacturing business, which designs and produces custom-made chips for other companies, likely continued to post losses, struggling to compete with industry leader TSMC.
Samsung has been making organizational changes to address its ongoing challenges. In May, the company replaced the head of its semiconductor division, with Young Hyun Jun taking over in an effort to tackle what has been referred to as a “chip crisis.” Additionally, Samsung is reportedly cutting up to 30% of its overseas staff in certain divisions as part of a broader effort to streamline operations.
Despite these setbacks, Samsung remains committed to enhancing its technological competitiveness, though the path ahead appears uncertain. The company is expected to announce detailed earnings results later this month, which will provide further insight into its strategies for overcoming the current challenges.
