Samsung Faces Challenges in AI Chip Race as Profits Decline

Samsung logs weak chip profit in 2024, vows to double HBM sales

ANN/THE KOREA HERALD - Samsung Electronics, the world's largest memory chipmaker, reported weaker-than-expected chip earnings in 2024 despite record sales, as it struggled to keep up in the artificial intelligence (AI) chip race amid plunging legacy product prices. The company said it achieved all-time high semiconductor sales of KRW111.1 trillion (USD76.4 billion) in 2024, but the operating profit stood at KRW15.1 trillion, falling short of market expectations and coming in behind its smaller rival SK hynix, which posted KRW23.4 trillion in the same period. Overall, with its business spanning smartphones and televisions to semiconductors, Samsung logged sales of KRW300.9 trillion in 2024, with operating profit standing at KRW32.7 trillion. The annual revenue was the second highest, trailing only its record in 2022. "The management and all the employees are very aware of the challenges that the company is facing, and we are fully committed to overcoming the current difficulties," Chief Financial Officer and Executive Vice President Park Soon-cheol said, making his first and rare appearance during earnings call on Thursday. "Samsung's business portfolio spans a diverse range of industries that operate within different business cycles and market dynamics, which cause fluctuations in our company's performance. We are confident that this diversity along with the progress being made in our businesses will drive gradual recovery," Park said, adding that he is committed to reinforcing the trust of shareholders and investors. The chipmaker said it will start delivery of the enhanced model of HBM3E from around the end of the first quarter of this year. HBM3E is the fifth-generation high bandwidth memory chip, a stacked DRAM chip used as a key component for enhancing AI processes for graphic processing units. "We started mass producing 8-layer and 12-layer HBM3E chips and expanded supply to multiple GPU makers and data centre clients in the fourth quarter of last year. So sales of HBM3E surpassed that of HBM3," the Executive Vice President in charge of the memory chip business Kim Jae-june said. The chip giant forecasts there may be a temporary gap in demand due to the impact of the advanced chip export controls recently announced by the United States (US) government and the fact that major customers are shifting their existing demand toward its improved HBM3E product. The company has reportedly come up with the enhanced HBM3E model upon request of Nvidia, the world's top GPU maker. The company said it is also preparing to start mass production of the next-generation HBM4 using a leading-edge 1c-nanometer process node in the second half of this year. Ramping up production of the upcoming models, Samsung said it aims to double its total HBM bit supply in 2025, compared to last year. Regarding 16-layer HBM3E products, the company anticipated there would not be any commercial demand, but it has produced samples and delivered them to key customers for technology validation. As legacy chips such as DDR4 and LPDDR4 are becoming less profitable amid falling prices, Samsung will cut the sales proportion to a single digit. Previously the chips took about 30 per cent of sales, according to the memory business chief. "As uncertainties in demand continue, we are continuing to shift our business portfolio focusing on high-value-added products. We are optimizing the line operations for some legacy nodes, while accelerating to cutting-edge nodes to respond to the demand for high-performance and high-density products," Kim said.

Samsung's Chip Division Underwhelms in Costly AI Memory Race

Samsung's smartphones, TVs and other appliances are facing growing comp Samsung Electronics Co.'s pivotal chip division reported a smaller-than-expected profit as the company fights to close the gap on archrival SK Hynix Inc. in the artificial intelligence arena. Samsung is ratcheting up its research and operating costs, with executives saying the spending on memory would stay at a similarly elevated level as last year. Total capital expenditures came to KRW 53.6 trillion (roughly Rs. 3,20,391 crore) in 2024. That push resulted in getting long-delayed approval for Samsung's supply of 8-layer HBM3E -- a less advanced variety of the high-bandwidth memory that SK Hynix supplies -- from Nvidia Corp. for use with AI processors tailored for the Chinese market. But the effort, along with exposure to legacy DRAM, is weighing on South Korea's largest company. Samsung's semiconductor unit reported operating profit of KRW 2.9 trillion (roughly Rs. 17,301 crore) for the December quarter, missing analysts' average projections. It also forecast limited earnings growth in the current quarter. The company's net income came to a bigger-than-expected KRW 7.58 trillion (roughly Rs. 45,235 crore), thanks to a boost from its network business. The stock price of Samsung fell 2.4 percent on Friday, the first trading day in Seoul after the Lunar New Year holiday. SK Hynix shares dropped 9.9 percent, reflecting in part concern that DeepSeek's low-cost AI would upend the entire premise of big spending on datacenters and powerful chips. Samsung executives said on Friday the company expanded its HBM3E supply to multiple providers of graphic processing units and datacenter customers in the fourth quarter. Still, US export restrictions on AI chips will likely weigh on its first-quarter earnings before overall memory chip demand starts recovering in the second quarter. "We expect a temporary constraint on HBM sales in the first quarter," partly due to US curbs as well as efforts to launch an improved version of its HBM3E chips, Kim Jaejune, executive vice president of Samsung's memory business, said during an earnings call. "There's been a shift among major customers who are opting to wait for enhanced HBM3E products, which may potentially result in a temporary gap in HBM demand." At CES earlier this month, Nvidia Chief Executive officer Jensen Huang said Samsung will have to engineer a new design. "But they can do it. They are working very fast. They're very committed to do it." "We firmly believe that the current challenges can be resolved swiftly," Chief Financial Officer Park Sooncheol said. "And by overcoming these challenges Samsung can enter a new phase of growth." This year, Samsung will focus on cutting its exposure to conventional DRAM and NAND for PCs and mobile devices while chasing higher-margin arenas of server DRAM and HBM, where demand "remains strong," executives said. It's stepped up spending on research and development and front-end capacity expansion in its efforts to catch up with both SK Hynix and Micron Technology Inc. But the foundry business will remain weak, while mobile and PC demand will remain soft, they said. Its smartphones, TVs and other appliances are facing growing competition, the company said, with executives citing ongoing uncertainties and delays in economic recovery. Investors remain concerned about Samsung's ability to claw its way back into the market for high-bandwidth memory chips, designed to work with Nvidia's AI accelerators. The company has struggled to get its latest products certified by Nvidia -- providing an unusually long window for SK Hynix and Micron to carve out commanding leads in the booming HBM market. Samsung has reorganized its team of engineers, hoping to reverse its market position with the next generation of HBM chips, or HBM4. Both Samsung and SK Hynix aim to become Nvidia's main vendor for HBM4 chips as they work to mass-produce them in the second half of this year. "We still think that it is possible for Samsung to right the ship eventually in its HBM business and boost the country's equity market, but a lot will hinge on its ability to achieve genuine commercial breakthroughs with the leading fabless AI names," said Homin Lee, a Singapore-based senior macro strategist at Lombard Odier. "Time is running out as memory is becoming increasingly commoditized, with Chinese rivals catching up fast in the DDR5 segment despite export controls." SK Hynix posted record quarterly income earlier this month, eclipsing Samsung's operating profit for the first time. Hynix said HBM made up 40 percent of its overall DRAM chip revenue in the quarter and it expects HBM sales to more than double this year. In November, Samsung announced a plan to buy back about KRW10 trillion (roughly Rs. 59,667 crore) of its own stock. Executives on the earnings call said the company is in the process of canceling some KRW 3 trillion (roughly Rs. 17900 crore) of shares and it's exploring the timing for the remaining KRW 7 trillion (roughly Rs. 41,766 crore)

Samsung predicts profit hit from weak semiconductor sales as US curbs bite

Samsung Electronics has reported weak demand for its memory chips is expected to limit earnings growth in the current quarter, with its problems compounded by US restrictions on supplying advanced semiconductors used in artificial intelligence hardware. The South Korean company said on Friday that it expects overall memory chip demand to start recovering in the second quarter. Its shares fell around 2.5 per cent on disappointment at the weak earnings forecast. "In the first quarter of 2025 . . . overall earnings improvement may be limited due to weakness in the semiconductor business," Samsung, the world's largest memory chipmaker, said in a statement. Kim Jae-june, executive vice-president of Samsung's memory business, later added: "There will be some temporary restrictions in our [high-bandwidth memory] chip sales in the first quarter. We expect some impact on our HBM demand from not just US restrictions on exports of high-end chips but also a shift in demand for improved chips by major clients." Samsung has been under pressure after failing to ride the AI investment wave. Its HBM AI chips have not matched the capabilities of those made by SK Hynix, nor won approval from Nvidia, a key customer. Samsung has also been hit hard by the sluggish Dram chip cycle due to its bigger exposure to commodity chips and the rise of Chinese rivals such as CXMT. SK Hynix shares dropped as much as 12 per cent on Friday morning as markets reopened after the lunar new year break -- catching up on concerns that big spending on data centres may have peaked, with DeepSeek's budget AI model triggering panic over future demand. Samsung executives told analysts on Friday the company was reducing its exposure to conventional memory semiconductors, focusing more on higher-margin chips used in AI servers, where demand "remains strong". But its contract-chipmaking foundry business remained weak amid soft demand for chips used in smartphones and PCs. Its investment in memory chips would be similar to last year's level, it said. The company reported total capital spending of Won53.6tn ($37bn) last year, with the bulk going to its chip unit. Samsung has reorganised its team of engineers to strengthen its HBM competitiveness, but Nvidia chief Jensen Huang said this month that Samsung had to "engineer a new design" to supply HBM chips to his company, although he added that "they can do it and they are working very fast". For the first time, SK Hynix overtook Samsung on quarterly profit in the fourth quarter, driven by its lead in HBM sales, which it expects to double this year. Samsung's chip division reported an operating profit of Won2.9tn in the October-December quarter, down 26 per cent from the previous quarter. "Samsung has lost its leadership in HBMs and it seems like even in commodity memory they are more exposed to Chinese competition," said Sanjeev Rana, head of Korea equity research at CLSA. "Hynix has been more resilient because they have this big portion of revenue from HBM demand which is really good," he added. "China's production of commodity memory has been growing and could pick up in the coming months . . . and there are some concerns about that as well."

Samsung earnings sink amid slow transition to AI chips

Samsung's flag waves at Samsung Electronics' office in Seocho District, Seoul, Friday, when the company announced its operating profit for the fourth quarter of 2024 plunged 29.2 percent from three months earlier. Newsis Operating profit from memory remains at W2.9 tril.By Nam Hyun-woo Samsung Electronics ended up posting an operating profit of 6.5 trillion won ($4.48 billion) for the fourth quarter of 2024, as the company suffered a critical slowdown across its main businesses of chips and appliances. Specifically, the chip business logged a disappointing 2.9 trillion won in operating profit due to the company's slow transition to high-bandwidth memory (HBM) chips specialized for artificial intelligence (AI) processors. The tech giant acknowledged that it is facing challenges but added that it expects to achieve a recovery "within a short period." Samsung announced the 6.5 trillion won operating profit in an earnings call on Friday, along with sales of 75.8 trillion won for the same period. The numbers represent 129.9 percent and 11.8 percent increases year-on-year, respectively, but fell short of brokerages' expectations that the operating profit would reach 7 trillion won. In a consolidated yearly basis, the company's 2024 sales stood at 300.9 trillion won and its operating profit reached 32.7 trillion won, representing 16.2 percent and 398.3 percent year-on-year increases. The numbers improved from a year earlier, when the global chip industry was in a downcycle, but backpedaled compared to the previous quarter, with the fourth-quarter sales and operating profit declining 4.17 percent and 29.2 percent, respectively. For the fourth quarter, the company's chip-making Device Solutions division posted 30.1 trillion won in sales and 2.9 trillion won in operating profit. Sales improved from three months earlier, but the operating profit slowed 24.9 percent from 3.86 trillion won during the same period. Read MoreSK hynix becomes most profitable Korean company in Q4 2024Chip architecture giant Arm's possible fee hike threatens SamsungWhy did Samsung overlook in-house memory for Galaxy S25? The numbers are disappointing when compared to those of Samsung's chip rival SK hynix. Earlier this month, SK hynix posted a slew of record highs in its fourth-quarter earnings, including an operating profit of 8.08 trillion won, buoyed by its solid presence in the global HBM market. This means that SK hynix, which makes only memory chips, was more profitable than all Samsung Electronics' businesses combined, and Korea's biggest company is now trailing behind SK hynix due to setbacks in supplying HBM chips for major clients, namely Nvidia. Samsung said in a statement that its revenue from memory chips was at a new fourth-quarter high due to increased sales of HBM and high-capacity DDR5, but the operating profit declined due to the increased R&D expenses and initial ramp-up costs for expanding advanced production capacity. During the earnings call, Samsung said its HBM revenue for the fourth quarter grew 1.9 times compared to the previous quarter, but it is "slightly lower" than its initial expectations because of geopolitical issues and "changes in demand stemming from improved HBM3e products that are planned (for shipping) in the first quarter of this year." Samsung Electronics' 12-layer high-bandwidth memory (HBM) 3e / Courtesy of Samsung Electronics Hours before the earnings call, Bloomberg reported that Samsung passed Nvidia's qualification test for less-advanced eight-layer HBM3e chips in December. Samsung did not mention Nvidia regarding the eight-layer chip, but noted that it will be able to supply improved eight-layer HBM3e chips in the first quarter of this year. The company said, however, that it expects a slowdown for the memory business in the first quarter, due to the U.S. government's recently announced export controls on advanced semiconductors and major customers shifting their orders to the improved HBM products. "The demand for mobile and PC memory remains weak, while uncertainty in HBM demand is increasing due to (U.S.) export controls on AI chips," the company said. "Additionally, demand is deferring on HBM, leading to an expected decline in sales volume. As a result, the first quarter is likely to see both sluggish demand for general DRAM and weaker-than-expected HBM sales." Nonmemory businesses, namely chip design and foundry, both saw their profitability decline due to increased R&D costs and weakening demand for mobile chips. Samsung did not break down its nonmemory earnings, but analysts assume losses exceeded 2 trillion won in the nonmemory sector. The slowdown in its foundry business is expected to prolong, as Samsung dropped hints at outsourcing base die for its next-generation HBM4, instead of using its in-house foundry. The company also cast a gloomy outlook for the chip design segment, as its Exynos processors are not supplied to the latest Galaxy S25 smartphone series. "HBM4 is being developed as planned, with mass production planned for the second half of next year," the company said. "We are preparing for the commercialization of custom HBM with multiple clients... Since meeting customer requirements is crucial, we plan to select foundry partners for base die production flexibly based on each client's needs." Samsung Electronics employees enter the company's office in Seocho District, Seoul, Friday, when the company announced its fourth-quarter earnings. Newsis The company's appliance business, including smartphone, home appliances and others, posted 40.5 trillion won in sales and 2.3 trillion won in operating profit for the fourth quarter, both backpedaling from that of three months earlier. The company saw declines in both the sales and operating profit of its smartphones from the previous quarter, as the impact of the Galaxy S24 series waned, leading to lower phone sales. Also, intensified competition resulted in weaker profitability for its TVs and home appliances, the company explained. "We are well aware of headwinds that we are facing, and we are doing our best to overcome," Samsung Electronics Chief Financial Officer Park Soon-chul said. "We believe that with our diverse business portfolio and the competitiveness of our core businesses, we can gradually recover from the current challenges... We see the current issues as an opportunity for a new leap forward and are confident that we can resolve them within a short period."

Samsung operating profit hit by R&D spending, fight to meet chip demand

The operating profit of South Korean tech giant Samsung Electronics sank almost a third in the fourth quarter owing to spending on research, the company said Friday, as analysts said it was struggling to meet demand for chips used in AI servers. But Samsung, the world's largest memory chip maker, has been struggling to meet the US firm's requirements. The operating profit of South Korean tech giant Samsung Electronics sank almost a third in the fourth quarter owing to spending on research, the company said Friday, as analysts said it was struggling to meet demand for chips used in AI servers. The news comes as industry leaders try to assess the outlook for the sector after Chinese startup DeepSeek unveiled a groundbreaking chatbot that performed as well as artificial intelligence pacesetters -- apparently for a fraction of the cost. The world's largest memory-chip maker had already acknowledged in October that it was facing a "crisis", and acknowledged questions had arisen about its "fundamental technological competitiveness and the future of the company". It said operating profit fell to 6.5 trillion won ($4.5 billion) in October-December, from 9.18 trillion won in the previous three months. However, it was up 130 percent on-year. Sales rose 11.8 percent to 75.78 trillion won and net profit rose 22.2 percent to 7.75 trillion won, topping forecasts according to Yonhap News Agency. The firm said the fourth-quarter fall-off was down to "soft market conditions especially for IT products, and an increase in expenditures including R&D", as well as the "initial ramp-up costs to secure production capacity for cutting-edge nodes". It warned that in the first three months of 2025 "overall earnings improvement may be limited due to weakness in the semiconductors business". Struggling US titan Nvidia, whose semiconductors power the AI industry, has been relying on SK hynix as its main supplier of high-bandwidth memory (HBM) chips for its AI graphics processing units (GPU). But Samsung, the world's largest memory chip maker, has been struggling to meet the US firm's requirements. Gloria Tsuen, a Moody's Ratings vice president and senior credit officer, told AFP that its technology leadership "in the semiconductor market has been eroded over the last few years". "The rapidly increasing demand for AI chips also heightens the technological difficulty in developing new, custom-made chips for customers in a timely manner," she added. Neil Shah of Counterpoint Research said Samsung's "conservative" moves to focus on costs relative to more challenging customer demands had been "key factors for the headwinds". Still, Bloomberg reported Friday that Samsung had obtained approval to supply a "version of its fifth-generation high-bandwidth memory (HBM) chips" to Nvidia, citing people familiar with the matter. Samsung declined to comment when asked by AFP about the report. The earnings figures come as the tech world is shaken by news of DeepSeek new R1 chatbot, which sparked at rout in tech titans -- Nvidia dived 17 percent Monday -- and raised questions about the hundreds of billions of dollars invested in AI in recent years. The Chinese startup has said it used less-advanced H800 chips -- permitted for export to China until late 2023 -- to power its large learning model. Worries about the impact of DeepSeek battered stocks in Seoul as the market reopened after an extended break Friday. Samsung fell more than two percent, while SK hynix plunged almost 12 percent at one point. Jaejune Kim, executive vice president of Samsung's memory business, said in an earnings call that the company was "monitoring industry trends considering various scenarios", as it also supplies HBM chips used in GPUs to various clients. "While it is premature to make judgements based on the currently limited information, we anticipate that long-term opportunities and short-term risks will coexist in the market," he said. He added that Samsung was determined to "actively respond to the rapidly evolving AI market". While Samsung faces fundamental technology headwinds, DeepSeek's claims have "challenged the fundamental economics and investments for ongoing AI waves", said Counterpoint's Shah. "This 'frugal innovation' could potentially slow down or stretch the hundreds of billions of dollars in AI infrastructure investments over the years," he said. "So, this could be a 'blessing in disguise' for Samsung, allowing them to take the time needed to perfect their solution or to lower costs," he added.

Samsung operating profit hit by R&D spending, fight to meet chip demand

The operating profit of South Korean tech giant Samsung Electronics sank almost a third in the fourth quarter owing to spending on research, the company said Friday, as analysts said it was struggling to meet demand for chips used in AI servers. The news comes as industry leaders try to assess the outlook for the sector after Chinese startup DeepSeek unveiled a groundbreaking chatbot that performed as well as artificial intelligence pacesetters -- apparently for a fraction of the cost. The world's largest memory-chip maker had already acknowledged in October that it was facing a "crisis", and acknowledged questions had arisen about its "fundamental technological competitiveness and the future of the company". It said operating profit fell to 6.5 trillion won ($4.5 billion) in October-December, from 9.18 trillion won in the previous three months. However, it was up 130 percent on-year. Sales rose 11.8 percent to 75.78 trillion won and net profit rose 22.2 percent to 7.75 trillion won on-year, topping forecasts according to Yonhap News Agency. The firm said the fourth-quarter fall-off was down to "soft market conditions especially for IT products, and an increase in expenditures including R&D", as well as the "initial ramp-up costs to secure production capacity for cutting-edge nodes". It warned that in the first three months of 2025 "overall earnings improvement may be limited due to weakness in the semiconductors business". US titan Nvidia, whose semiconductors power the AI industry, has been relying on SK hynix as its main supplier of high-bandwidth memory (HBM) chips for its AI graphics processing units (GPU). But Samsung, the world's largest memory chip maker, has been struggling to meet the US firm's requirements. Gloria Tsuen, a Moody's Ratings vice president and senior credit officer, told AFP that its technology leadership "in the semiconductor market has been eroded over the last few years". "The rapidly increasing demand for AI chips also heightens the technological difficulty in developing new, custom-made chips for customers in a timely manner," she added. Neil Shah of Counterpoint Research said Samsung's "conservative" moves to focus on costs relative to more challenging customer demands had been "key factors for the headwinds". Still, Bloomberg reported Friday that Samsung had obtained approval to supply a "version of its fifth-generation high-bandwidth memory (HBM) chips" to Nvidia, citing people familiar with the matter. Samsung declined to comment when asked by AFP about the report. Blessing in disguise? The earnings figures come as the tech world is shaken by news of DeepSeek new R1 chatbot, which sparked a rout in tech titans -- Nvidia dived 17 percent Monday -- and raised questions about the hundreds of billions of dollars invested in AI in recent years. The Chinese startup has said it used less-advanced H800 chips -- permitted for export to China until late 2023 -- to power its large learning model. Worries about the impact of DeepSeek battered stocks in Seoul as the market reopened after an extended break Friday. Samsung ended down more than two percent, while SK hynix lost 9.9 percent, having earlier plunged almost 12 percent. Jaejune Kim, executive vice president of Samsung's memory business, said in an earnings call that the company was "monitoring industry trends considering various scenarios", as it also supplies HBM chips used in GPUs to various clients. "While it is premature to make judgements based on the currently limited information, we anticipate that long-term opportunities and short-term risks will coexist in the market," he said. He added that Samsung was determined to "actively respond to the rapidly evolving AI market". While Samsung faces fundamental technology headwinds, DeepSeek's claims have "challenged the fundamental economics and investments for ongoing AI waves", said Counterpoint's Shah. "This 'frugal innovation' could potentially slow down or stretch the hundreds of billions of dollars in AI infrastructure investments over the years," he said. "So, this could be a 'blessing in disguise' for Samsung, allowing them to take the time needed to perfect their solution or to lower costs," he added.

Samsung Expects Limited Earnings Growth Amid Chip Woes -- Update

Samsung Electronics forecast limited earnings growth in the current quarter after better-than-expected net profit for the fourth quarter, as profitability at its core semiconductor business continued to weaken. "Overall earnings improvement is expected to be limited in the first quarter as the semiconductor sector continues to be weak," Samsung said in a statement Friday after the results. The world's largest maker of memory chips and smartphones has said it faces challenges from sluggish demand for conventional chips and information-technology devices amid intensified market competition. Samsung is also lagging behind its competitors that supply high-end artificial-intelligence chips, including advanced high-bandwidth-memory products. Nvidia said earlier this month that it was still testing Samsung's HMB3E products for the U.S. AI chip giant's use. Samsung's chip-making rival SK Hynix began mass producing 12-layer HBM3E products last year and now plans to expand supply of the chips further and develop even more advanced HBM4 products to meet customers' needs. Samsung recently got approval to supply less advanced eight-layer HBM3E products to Nvidia, Bloomberg News reported Friday, citing unnamed sources. Samsung declined to comment. Investors have punished Samsung for the slow progress in advancing its HBM technology, with its share price falling more than 10% in the final quarter of 2024, bringing its losses for the year to about 30%. Shares in Samsung were recently 2.8% lower Friday after the earnings report. Net profit for the October-December period rose 22% from a year earlier to 7.754 trillion won, equivalent to $5.36 billion, beating a FactSet-compiled consensus estimate of 6.353 trillion won. Profit, however, fell 23% from the previous quarter, the company said. Samsung's flagship chip-making division generated operating profit of about 2.9 trillion won, down from around 3.9 trillion won in the third quarter and roughly 6.5 trillion won in the second quarter. The result was way below SK Hynix's fourth-quarter profit, which topped 8 trillion won. Revenue for the quarter increased 12% from a year ago to 75.788 trillion won, slightly above the company's preliminary estimate, while operating profit more than doubled to 6.493 trillion won, largely meeting its guidance. For the full year, the company reported net profit of 34.451 trillion won and operating profit of 32.726 trillion won as revenue rose 16% to 300.871 trillion won. The South Korean technology titan said in a preliminary earnings report earlier this month that sluggish demand for conventional chips used in personal computers and mobile phones weighed on its memory business, with earnings also dented by rising costs for research and development as well as early investments in expanding advanced-chip processing capability. Intensified competition also hit earnings for its business of smartphones and other electronic devices, it said, as the effect of new product launches was tapering off. Samsung on Friday said operating profit at its smartphone division fell 25% from the previous quarter. Profit at its television division dropped 60%.

Samsung's Chip Profit Misses on Costly AI Memory Catchup Race

Samsung Electronics Co.'s pivotal chip division reported a smaller-than-expected profit as the world's largest memory chipmaker fights to narrow the lead arch-rival SK Hynix Inc. has in the artificial intelligence arena. The Suwon-based company's semiconductor unit reported operating profit of 2.9 trillion won ($2.1 billion) for the December quarter, falling short of analysts' average projection for 4.78 trillion won. That compares with the 3.86 trillion won operating profit in the previous quarter. Its shares were down more than 3% on Friday.

Samsung warns of slow AI chip sales as US restrictions mount

STORY: Samsung warned of slow AI chip sales over the first quarter of the year. In an earnings call Friday, the South Korean tech giant said that's due to recent U.S. restrictions that aim to tighten the flow of advanced chips to China. Chinese customers make up 20% of Samsung's sales of HBM - or high-bandwidth memory chips. Those have been a bright spot in a weak chip market, thanks to the AI boom. But Samsung, the world's biggest memory chip maker, is playing catch-up to its smaller local rival SK Hynix, which is Nvidia's main supplier of such chips. As for the overall memory market, Samsung said it expects demand to recover from the second quarter. And said it would continue to work towards providing high-end chips to Nvidia. The South Korean firm on Friday confirmed a fourth-quarter profit of just under $4.5 billion. That was down 29% from the previous period, but a major increase from the same time a year ago, when the chip business was in its worst downturn in decades. Samsung is also grappling with weak smartphone sales. Operating profits for its phone business fell 22% in the fourth quarter compared to the same time a year earlier.

Samsung doubles down on AI with $37B but investors see red

Samsung Electronics reported a significant decline in its operating profit for the fourth quarter, following increased R&D spending and weakness in its semiconductor business. The South Korean company posted fourth-quarter revenue of 75.8 trillion Korean won ($52.2 billion), exceeding its own guidance but falling short of expectations for operating profit, which reached KRW 6.5 trillion. Despite an annual revenue increase of about 12% and a remarkable 130% growth in operating profit year-on-year, the quarterly results reflected a nearly 30% drop in operating profit and over a 4% decrease in revenue compared to the previous quarter. Samsung stated that while quarterly figures declined, annual revenue for 2023 was KRW 258.94 trillion, with an operating profit of KRW 6.57 trillion. Samsung's semiconductor unit indicated an operating profit of KRW 2.9 trillion for the fourth quarter, a decline of over 25% from the previous quarter, marking its annual figures lower than those of SK Hynix. Although the memory business achieved record-high revenue of 30.1 trillion won driven by demand for advanced memory products, operating profits were impacted by increased R&D expenditures and ramp-up costs related to the production of cutting-edge technologies. In the smartphone segment, Samsung's mobile experience and networks businesses saw a decrease in sales and profit from the previous quarter, attributed to the diminishing effects of recent flagship launches. The segment recorded consolidated revenue of KRW 25.8 trillion and operating profit of KRW 2.1 trillion. Nevertheless, Samsung noted robust growth in flagship sales on an annual basis, particularly driven by the Galaxy S24 series. Apple's iPhone 16 outsold iPhone 15 but there's a catch Looking ahead, Samsung plans to concentrate on AI smartphones and other premium devices while indicating potential earnings limitations in the current quarter due to semiconductor market weaknesses. The company is set to introduce new flagship models, specifically its Galaxy S25 series, to stimulate sales growth. Samsung's R&D efforts are rising, with capital expenditures reaching 53.6 trillion won ($37 billion) in 2024. The company has sought to expand its supply of high-bandwidth memory (HBM) products, competing closely with SK Hynix, which has gained a significant lead in this market segment. Samsung executives express confidence in overcoming challenges and advancing its HBM capabilities in response to emerging AI demands. In stock market activity, Samsung shares fell 2.2% following the earnings announcement, while SK Hynix's stock experienced a sharper decline of over 11%. Investors continue to show concern regarding Samsung's position in the high-bandwidth memory market amid increasing competition from both SK Hynix and Micron Technology, as well as new pressures from advancements in AI technology. In November, Samsung announced a plan for a stock buyback worth about 10 trillion won, reporting in its earnings call that it is in the process of canceling around 3 trillion won of shares while exploring timing for the remaining buyback amount. Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.