Samsung Electronics has issued an apology for its disappointing third-quarter profit forecast, attributing its struggles in the AI chip market to delays and increased competition from Chinese rivals. The tech giant, known as the world’s largest memory chipmaker, is facing challenges in meeting market expectations, particularly in supplying high-end chips to Nvidia amid the booming AI sector.
In a statement, Samsung warned that its operating profit for the three months ending September 30 is expected to fall to 9.1 trillion won ($6.78 billion), significantly below the LSEG SmartEstimate of 10.3 trillion won. This projection marks a decline from 2.43 trillion won during the same period last year and a decrease from 10.44 trillion won in the previous quarter.
“The earnings are a shock compared to what many analysts expected initially,” said Lee Min-hee, an analyst at BNK Investment & Securities. “I don’t see its earnings improving in the current quarter,” he added, noting that Samsung lags behind SK Hynix in sales of high bandwidth memory (HBM) chips to Nvidia. Lee further pointed out that Samsung’s high exposure to the Chinese market is detrimental to its performance.
As the demand for high-margin chips used in AI servers drives a recovery in the chip market, Samsung’s late response to the AI chip market has increased its reliance on traditional, lower-margin chips. Analysts suggest this situation leaves Samsung vulnerable to competition from Chinese firms and a slowdown in demand for smartphones and PCs.
Young Hyun Jun, Vice Chairman of Samsung’s Device Solutions Division, acknowledged the company’s struggles, stating, “We have caused concerns about our technological competitiveness, with some talking about the crisis facing Samsung.” He added, “These are testing times,” while pledging to turn the challenge into an opportunity and focus on enhancing long-term technological competitiveness.
Following the earnings guidance, Samsung’s share price, already down over 20 percent this year, fell 1.6 percent. The company attributed its declining earnings in the memory chip sector to increased supplies of “legacy” products from Chinese competitors and inventory adjustments from some mobile customers, which offset solid demand for HBM and other chips used in servers.
Samsung reported that the start of sales of its high-end HBM3E chips to a major customer was delayed relative to expectations, although further details on the issue were not provided. Analysts predict that Samsung’s contract chip manufacturing division, which creates custom chips for other companies, likely continued to experience losses in the third quarter as it struggles to compete with market leader TSMC, which serves clients like Apple and Nvidia.
Despite these setbacks, Samsung’s mobile division saw improvements in earnings due to strong sales of its flagship smartphones, and its display unit also grew as customers, including Apple, launched new models. The company plans to announce its detailed earnings results later this month.
In May, Samsung made significant changes in leadership, replacing the chief of its semiconductor division and appointing Jun in an effort to address the ongoing “chip crisis.” In a further sign of its challenges, reports surfaced in September that Samsung is cutting up to 30 percent of overseas staff in some divisions.
In contrast, Samsung’s US rival Micron recently forecast first-quarter earnings ahead of Wall Street estimates, reporting its highest quarterly revenue in over a decade due to booming demand for its memory chips used in AI applications.