EZ SQUARE

Samsung to focus on high-end chips to improve earnings after disappointing results

2024-10-31 12:25:04

By Hyunjoo Jin and Heekyong Yang

SEOUL (Reuters) -Samsung Electronics said it would focus on producing high-end chips to improve profitability after reporting a 40% quarter-on-quarter plunge in chip profit, in a stark contrast with rivals TSMC and SK Hynix that posted record earnings on the AI boom.

The world's biggest maker of memory chips, smartphones and TVs also warned on Thursday of limited earnings growth in the current quarter due to intensifying competition in the consumer electronics segment during the peak year-end demand season.

"In the fourth quarter, while memory (chip) demand for mobile and PC may encounter softness, growth in AI will keep demand at robust levels," Samsung said in an earnings statement.

"Against this backdrop, the Company will concentrate on driving sales of High Bandwidth (NASDAQ:BAND) Memory (HBM) and high-density products," it said, referring to premium memory chips used to make AI chipsets like those produced by industry leader Nvidia (NASDAQ:NVDA).

Samsung posted an operating profit of 9.2 trillion won ($6.66 billion) in the July to September period, compared with 2.4 trillion won a year earlier and 10.4 trillion won the previous quarter.

The third-quarter result was slightly above Samsung's preliminary estimate of 9.1 trillion won flagged earlier this month, which was below market expectations at the time. Shares fell 0.2% in early trading on Thursday, with the wider South Korean market down 1.3%.

"Samsung Electronics (KS:005930) hasn't commercialised HBM as effectively as its competitors, so its third-quarter performance and fourth-quarter outlook are falling short of market expectations," said Baik Gil-hyun, analyst at Yuanta Securities.

"It's anticipated that it will take some time before the business performs as expected."

The South Korean company this month made a rare apology for its disappointing earnings, citing "delays" in sales of its advanced chips to an unidentified major customer and rising supply of traditional chips from Chinese rivals.

Artificial intelligence is the only bright spot in the sluggish chip market, but Samsung has been struggling to supply high-end semiconductors used in Nvidia's AI chipsets, making the South Korean company more vulnerable to lacklustre demand for traditional chips used in PCs and smartphones.

CHIP EARNINGS FALL

Samsung's chip division swung to an operating profit of 3.9 trillion won in the third quarter from a loss of 3.8 trillion won a year earlier, but that was down from 6.45 trillion won the preceding quarter.

Samsung said its chip earnings were hurt by one-off expenses such as the provision of employee incentives, and currency effects due to a weak dollar.

SK Hynix had posted a record third-quarter operating profit of 7 trillion won and TSMC also had its best-ever result during that period thanks to AI chip sales to Nvidia.

Samsung is struggling to compete against rivals not only in its mainstay memory chip business, but also in its foundry business that designs and produces logic chips for other clients. Analysts say Samsung's logic chip business suffered from widening losses in the third quarter.

The company has postponed taking deliveries of ASML (AS:ASML)'s high-end chipmaking equipment for its upcoming factory in Texas as it has yet to win any major customers for the project, sources previously told Reuters.

Samsung's mobile devices business also saw its third-quarter operating profit dropping to 2.8 trillion won from 3.3 trillion won a year earlier.

($1 = 1,380.3900 won)

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