Samsung Electronics (SSNLF, Financial) has reported lower-than-expected profits from its main chip business, highlighting difficulties in keeping up with competitors in the lucrative AI chip market. The chip division, typically Samsung's largest profit generator, saw an operating profit of 3.86 trillion won ($2.8 billion) in the third quarter, falling short of the 6.7 trillion won predicted by analysts. Sales reached 29.27 trillion won.
The Device eXperience (DX) division recorded an operating profit of 3.37 trillion won with sales of 44.99 trillion won, while the Mobile eXperience (MX) division saw growth in both operating profit and sales due to new smartphones, tablets, and wearables.
This year, Samsung's market value has decreased by about a quarter as it struggles to get its latest chips certified for use in Nvidia's (NVDA) AI accelerators, presenting a rare opportunity for competitors SK Hynix and Micron Technology (MU) to lead in the high-bandwidth memory (HBM) sector. SK Hynix recently announced a record operating profit of 7.03 trillion won.
Samsung stated that demand related to AI and data center servers remains strong, but mobile chip demand continues to be weak due to inventory adjustments by some clients. The company is also dealing with increased supply of traditional chips. Samsung plans to invest 47.9 trillion won in semiconductor capital expenditure this fiscal year and boost sales of high-end products like HBM3E.
Despite these challenges, Samsung's net profit for the September quarter was 9.78 trillion won, surpassing the average analyst expectation of 9.14 trillion won, thanks to contributions from other business sectors. The company's sales increased by 17.35% year-on-year, reaching a record 79.0987 trillion won in a single quarter. In the Korean stock market, Samsung shares initially fell by 1.4% on Thursday morning but later recovered.
Three weeks before Samsung released its financial results, Jun Young-hyun, head of the chip business, apologized for the disappointing performance. The company acknowledged delays in certifying its most advanced HBM3E series chips, which they had initially expected to mass-produce by the third quarter. Meanwhile, SK Hynix confirmed plans to start supplying its 12-layer HBM3E in the fourth quarter. Samsung is also experiencing slow progress against TSMC (TSM) in outsourced production of custom chips. Jun has mentioned the need for Samsung to reassess its organizational culture and processes, aligning with prior comments on the necessity of fundamental changes for one of Korea's oldest companies. Reports indicate the company has begun implementing global job cuts in regions like Southeast Asia, Australia, and New Zealand.
