Samsung Faces Challenges Amid AI Chip Demand
Samsung Electronics, the world’s leading memory chip manufacturer, is bracing for a challenging fourth quarter. The company is expected to announce on Wednesday that its profit growth has continued to slow. This slowdown comes as Samsung struggles to meet the soaring demand for AI chips from Nvidia, a major player in the tech industry. Despite being the largest smartphone and TV maker globally, Samsung’s chip division faces significant hurdles.
Profit Estimates and Market Reactions
Analysts predict that Samsung’s operating profit for the fourth quarter will rise to approximately 8.2 trillion won ($5.6 billion or roughly Rs. 47,984 crore). This figure marks an increase from a low base of 2.8 trillion won (around Rs. 16,547 crore) a year earlier. However, it represents a decline from the previous quarter’s profit of 9.18 trillion won (about Rs. 54,238 crore). In recent weeks, several analysts have revised their earnings estimates downward, with some forecasting that operating profit could dip below 8 trillion won (approximately Rs. 47,267 crore).
In October, Samsung issued a rare apology for its disappointing third-quarter results. The company acknowledged its struggles in supplying AI chips to Nvidia, a situation that has not improved since then. Analysts have noted that delays in providing high-end chips to Nvidia continue to impact Samsung’s earnings negatively. In response to these challenges, Samsung made significant changes in its leadership, appointing its chip division chief as co-CEO and granting him direct control over the struggling memory chip business.
Competitive Landscape and Market Performance
Samsung’s stock performance has been lackluster, with shares plummeting 32 percent last year. This decline starkly contrasts with the broader market, which saw a 10 percent loss during the same period. Meanwhile, Samsung’s rival, SK Hynix, has emerged as a strong competitor. SK Hynix is expected to report record earnings for the fourth quarter, largely due to its success in supplying advanced AI memory chips to Nvidia. This competitive landscape highlights the challenges Samsung faces in maintaining its market position.
The pressure on Samsung’s earnings is compounded by a general decline in demand for traditional chips used in mobile phones and PCs. Additionally, increased production from Chinese competitors has further strained chip prices. The situation has been exacerbated by US chipmaker Micron Technology, which recently forecasted quarterly revenue and profit below Wall Street estimates. This forecast reflects the broader trend of weak demand for consumer-centric products, impacting not only Micron but also its competitors, including Samsung.
Price Pressures and Economic Factors
The semiconductor market is currently experiencing significant price pressures. Analysts have reported a lack of demand for traditional chips, particularly DDR4 DRAM chips used in personal computers. Prices for these chips fell by as much as 13 percent in the fourth quarter and are expected to decline another 15 percent in the current quarter, according to estimates from TrendForce. This decline in prices offsets any potential benefits from a weaker South Korean won, which typically boosts repatriated earnings from overseas.
The South Korean won recently dropped to its weakest level in 15 years, influenced by political turmoil following President Yoon Suk Yeol’s martial law decree. Additionally, the prospect of higher tariffs on imports advocated by US President-elect Donald Trump has added to the uncertainty in the market. Analysts predict that Samsung’s logic chip business, which produces chips designed by customers like Qualcomm, will continue to incur losses, further eroding the company’s overall chip earnings.
As Samsung prepares to announce its fourth-quarter revenue and operating profit estimates, the company plans to release detailed results, including a breakdown of earnings for each of its business segments, later in January. The upcoming announcements will be closely watched by investors and analysts alike, as they seek to gauge the company’s ability to navigate these challenging market conditions.
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