Samsung Electronics apologizes for low profits amid AI chip problems

Samsung Electronics warned that its third-quarter profit would fall short of market expectations and apologized for underperformance, saying the company was lagging behind rivals in supplying advanced chips to Nvidia in the fast-growing artificial intelligence market. Samsung said its AI chip business for a major unnamed customer has suffered due to the delays. At the same time, Chinese rivals have increased shipments of conventional chips, hurting semiconductor revenue.

Nvidia said it had been hit by delays.

These comments underscore the challenges facing the company, which has been the world’s largest memory chip maker for three decades. It now faces increasing competition in both traditional and advanced chips. The world’s largest maker of memory chips, smartphones and televisions estimated operating profit for the three months ended Sept. 30 at 9.1 trillion won ($6.78 billion), below LSEG SmartEstimate of 10.3 trillion won. By comparison, the profit was 2.43 trillion won in the same period last year and 10.44 trillion won in the second quarter of 2023.

SmartEstimate.

Outperformance and challenges in the market

«The results were a shock compared with analysts’ initial expectations,» said Lee Min-hee, an analyst at BNK Investment & Securities.

He added that he does not expect earnings to improve in the current quarter as Samsung lags behind rival SK Hynix in sales of high-bandwidth memory (HBM) chips for Nvidia, and its heavy reliance on the Chinese market has an additional negative impact.

Samsung’s sales of high-bandwidth memory (HBM) chips for Nvidia are lagging behind its rival SSK Hynix, and its heavy reliance on the Chinese market has an additional negative impact.

Samsung’s late response to the growing AI chip market increases its reliance on traditional low-margin chips, making the company more vulnerable to Chinese competitors and slowing demand for smartphones and PCs, according to analysts.

Samsung’s late response to the growing AI chip market increases its dependence on traditional low-margin chips, making the company more vulnerable to Chinese competitors and slowing demand for smartphones and PCs, according to analysts.

High-margin chips used in AI servers are helping the semiconductor market recover from the post-pandemic slump in demand last year. However, Samsung is lagging behind SK Hynix in supplying HBM chips to AI leader Nvidia.

Samsung’s plans for the future

«We have raised concerns about our technological competitiveness, and some people are talking about the crisis Samsung is facing,»” said Yoon Hyun-joon, vice chairman of Device Solutions DivisionSamsung Electronics. He acknowledged that these are challenging times for the company, but pledged to turn these challenges into opportunities and focus on long-term improvements in technological competitiveness.

Samsung Electronics.

Samsung shares, already down more than 20% since the start of the year, fell another 1.6% after the company released its earnings forecasts.

Samsung shares, which had already fallen more than 20% since the start of the year, fell another 1.6% after the earnings release.