Samsung apologizes for its disappointing gains in the battle against AI chips

Samsung Electronics warned that third-quarter profit would be below market expectations and apologized for the disappointing performance that saw the tech giant lag behind its rivals in supplying high-quality chips to Nvidia in the booming AI market.

The rare apology illustrates the challenges facing the company, which has been the world’s largest memory chipmaker for three decades but faces growing competition in both conventional and advanced chips.

Samsung said its AI chip business with an undisclosed major customer was hit by slowdown, while Chinese chip rivals increased shipments of conventional chips, contributing to the decline in semiconductor revenues.

The world’s largest maker of memory chips, smartphones and TVs estimated operating profit of KRW 9.1 trillion ($6.78 billion or 56,631 crore) for the three months ended September 30, versus an LSEG SmartEstimate of KRW 10.3 trillion (approximately Rs.64,086).

That would compare with KRW 2.43 trillion (about Rs. 15,117 crore) in the same period a year earlier and KRW 10.44 trillion (about Rs. 64,948 crore) 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 earnings improving in the current quarter,” he said. He said the company is lagging behind SK Hynix in increasing sales of high-bandwidth memory (HBM) chips to Nvidia, and its high exposure to the Chinese market is hurting.

Samsung’s late response to the AI ​​chip market increases its reliance on traditional lower-margin chips, making the company more vulnerable to competition from China and weakening demand for smartphones and PCs, analysts say.

High-margin chips used in AI servers are driving a recovery in the chip market after a post-pandemic downturn last year. Still, Samsung lags behind SK Hynix in supplying high-bandwidth memory (HBM) chips to AI leader Nvidia.

“We have raised concerns about our technological competitiveness, with some speaking about the crisis facing Samsung,” said Young Hyun Jun, vice chairman of Samsung Electronics’ Device Solutions Division.

“These are difficult times,” he said, pledging to turn the challenge into an opportunity and focus on improving long-term technological competitiveness.

Samsung’s share price, which has already fallen more than 20 percent so far this year, fell 1.3 percent, underperforming a 0.4 percent decline in the benchmark KOSPI.

HBM chips delayed

Samsung said in a statement that the start of sales of its high-end HBM3E chips to a major customer has been “delayed compared to our expectations.” The issue was not delved into further.

Samsung said in July that it would begin mass production of the chips between July and September.

Profits in the company’s memory chip business fell as Chinese rivals increased supply of “legacy” products and some mobile customers adjusted their inventories, offsetting solid demand for HBM and other chips used in servers, Samsung added to.

Samsung’s contract chip manufacturing business, which designs and produces custom chips for other companies, likely continued to lose money in the third quarter as it struggles to compete with leader TSMC, which counts Apple and Nvidia among its customers, analysts said.

Samsung chief Jay Y. Lee told Reuters on Monday that he is not interested in spinning off contract chip manufacturing and logic chip design.

Samsung said one-time costs such as incentive provisions and the unfavorable local currency also contributed to the decline in chip profits.

Profits in the mobile division improved from the previous quarter thanks to solid sales of its flagship smartphones, while profits in the display unit grew as customers including Apple launched new models.

Samsung will announce detailed earnings results on October 31.

In May, Samsung abruptly replaced the head of its semiconductor division and handed Jun the reins in an effort to overcome a “chip crisis.”

Samsung is also cutting as many as 30 percent of foreign staff at some divisions, Reuters reported in September, underscoring the challenges the company faces.

U.S. rival Micron last month forecast first-quarter profit that beat Wall Street estimates and reported its highest quarterly revenue in more than a decade on booming demand for its memory chips used in AI.

© Thomson Reuters 2024

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)