Samsung Electronics is making significant efforts to strengthen its semiconductor division, particularly in the competitive AI chip market, following a notable decline in profits during the third quarter.
The South Korean tech giant reported an operating profit of 9.2 trillion won ($6.66 billion) for the period from July to September, slightly exceeding its preliminary estimates but down from 10.4 trillion won in the previous quarter. The company’s chip division, which is vital for its overall earnings, experienced a dramatic profit drop, plunging to 3.9 trillion won from 6.5 trillion won in Q2—a decline of approximately 40% quarter-on-quarter.
This significant downturn has raised concerns among investors and led to a rare public apology from Samsung regarding its disappointing performance. The company attributed its challenges to delays in the commercialization of high-bandwidth memory (HBM3E) chips, essential for AI applications, and increased competition from Chinese manufacturers providing traditional chips. As a result, Samsung has lost ground to rivals such as TSMC and SK Hynix, the latter of which recently reported record earnings driven by AI chip sales.
During a recent earnings call, Samsung’s Executive Vice President Jaejune Kim expressed optimism about future sales of HBM3E chips, highlighting progress in qualifying the product with a major client, believed to be Nvidia. Nvidia currently dominates the AI chip market with an estimated 80% market share, making its approval critical for Samsung’s success in this sector.
Analysts noted that successfully qualifying Samsung’s HBM3E chips could mark a turning point for the company’s semiconductor ambitions, as gaining Nvidia’s endorsement is crucial for entering the AI chip market. In response to these challenges, Samsung is focusing on producing high-end chips and anticipates improved sales in the fourth quarter.
The company acknowledged that while demand for memory chips in mobile devices and PCs may weaken, the growing AI market could provide a buffer against overall sluggishness in chip demand. Samsung plans to enhance its offerings in the high-bandwidth memory segment, which is vital for AI and data center applications.
Samsung’s difficulties are exacerbated by a broader industry trend where major competitors are flourishing due to surging demand for AI-related technologies. Additionally, the mobile division also reported a decrease in operating profit, underscoring the challenging landscape the company faces.
As Samsung navigates this downturn, it is under pressure to adapt its operations and strategy. The company has made workforce adjustments, including layoffs in specific regions, and is exploring avenues to enhance its technical competitiveness. The newly appointed head of the semiconductor division, Jun Young-hyun, emphasized the importance of focusing on long-term improvements rather than quick fixes to reclaim market leadership.
Looking ahead, Samsung’s next steps will be crucial as it aims to recover from this setback. The company is counting on its HBM3E chips to revitalize its presence in the AI sector, increasingly seen as the future of the chip market. The full impact of its recent strategic changes will become evident in upcoming quarterly reports as Samsung strives to reposition itself in a rapidly evolving industry landscape.
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