Samsung falls short of expectations as chipmaker fails to reap AI benefits

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Samsung Electronics reported an operating profit of Won3.9tn ($2.8bn) from its chip division in the third quarter, falling far short of analyst estimates and behind its South Korean rival SK Hynix, as the world’s biggest memory-chip maker failed to take full advantage of the artificial intelligence boom.

Operating profit in the July-to-September quarter was much lower than the Won6.7tn estimate of analysts polled by Bloomberg and the Won6.45tn profit reported in the preceding quarter.

Chip earnings were also much smaller than those of domestic rival SK Hynix, which reported a record Won7tn operating profit last week, highlighting the widening gap in their competitiveness in advanced memory chips. Samsung this month issued a rare public apology for its weak performance as it has struggled to catch up with SK Hynix in high bandwidth memory chips used in AI hardware.

Samsung has not managed to pass industry leader Nvidia’s qualification tests for advanced HBM chips, but the company said on Thursday it had made “meaningful progress” in winning approval from a “major customer” and expected HBM chip sales to increase in the fourth quarter.

Samsung’s share price has fallen more than 30 per cent from its July peak on heavy foreign selling, but the shares gained 2 per cent on Thursday morning amid hopes Samsung could regain lost ground in HBM chips.

The company expects limited earnings growth in the fourth quarter due to falling demand in mobile and computer Dram memory chips and a rising supply of legacy chips in China.

Analysts have expressed scepticism about Samsung’s business prospects in HBM and expect a major shake-up among its chip executives next month.

“Samsung remains optimistic about the HBM outlook, but it won’t be easy to pass the qualification test and increase HBM yields,” said an analyst at a foreign brokerage, referring to Samsung being able to produce more of the chips without flaws.

“It is too early to talk about Samsung regaining HBM competitiveness,” the analyst added. “Some of its key memory executives will likely be replaced for the weak performance.”

In May, Samsung replaced its semiconductor chief in an effort to overcome what it described as a “chip crisis”. The company expects increased sales of its most advanced HBM3E chips in the fourth quarter and plans to mass-produce next-generation HBM4 chips in the second half of next year.

SK Hynix said last week it planned to supply its latest-generation 12-layer HBM3E chips in the current quarter.

Samsung is also suffering ballooning losses in its contract chipmaking business as it fails to narrow the gap with industry leader TSMC.

The company expects its capital expenditure for the semiconductor business to reach Won47.9tn this year, slightly less than last year’s Won48.4tn, and said it would be “cautious” with spending next year.

Samsung’s mobile division, which makes smartphones, suffered a 15 per cent fall in operating profit amid mounting pressure from Apple and Chinese rivals in AI-enabled smartphones and higher-margin foldable phones, respectively. Its executives expect the global smartphone market to grow less than 1 per cent next year.

“Samsung is losing its technological edge not only in HBM but also in other advanced memory chips and smartphones,” said Park Ju-geun, head of research group Leaders Index. “In order to overcome the crisis, it needs to replace its executives with ones with more of an engineering focus.”