Samsung Electronics' Third-Quarter Profit Growth Slows as Chip Business Recovers Weakly

Samsung Electronics' Third-Quarter Profit Growth Slows as Chip Business Recovers WeaklySamsung Electronics Co., Ltd

Samsung Electronics' Third-Quarter Profit Growth Slows as Chip Business Recovers Weakly

Samsung Electronics Co., Ltd., the South Korean tech giant, released its third-quarter earnings report on Thursday, covering the period ending September 30, 2024. While net profit saw significant growth, the company's recovery momentum slowed down from the previous quarter, largely attributed to its failure to fully capitalize on the AI boom, unlike its chip industry rivals such as TSMC and SK Hynix.

The report revealed total revenue of 79.1 trillion won (approximately $57.3 billion) for the third quarter, representing a 17.3% year-on-year increase and a 7% quarter-on-quarter rise. This achievement was driven by the launch effect of new smartphones and increased sales of high-end memory products.

Samsung Electronics' operating profit for the third quarter reached 9.18 trillion won (approximately $6.6 billion), a significant 277.4% jump from 2.43 trillion won (approximately $1.8 billion) in the same period last year. However, it showed a slight decline compared to the previous quarter's 10.4 trillion won (approximately $75.4 billion) and fell short of analysts' average forecast of 10.8 trillion won. This was primarily due to one-time costs incurred by Samsung, including incentives provided to its Device Solutions (DS) division. Furthermore, the appreciation of the Korean won against the US dollar also affected profit settlement.

Chip Business Recovery Remains Weak

Samsung Electronics provided a detailed breakdown of its performance across various business segments in the third-quarter earnings report. The chip business (DS) generated a comprehensive revenue of 29.27 trillion won (approximately $21.2 billion), with an operating profit of 3.86 trillion won (approximately $2.8 billion), marking a remarkable turnaround from the 2.18 trillion won (approximately $1.6 billion) loss incurred in the same period last year. However, this figure showed a decline compared to the previous quarter's operating profit of 6.45 trillion won (approximately $4.7 billion), mainly due to the sluggish recovery of the chip market.

Looking ahead to the fourth quarter semiconductor market outlook, Samsung Electronics stated, "We expect the demand trends from the previous quarter to persist." For the memory business, while major data centers and tech companies continue to invest, driving strong demand for memory products in the AI and traditional server domains, mobile demand remains relatively weak, primarily affected by inventory adjustments by some customers. Moreover, the increased supply of legacy products from the Chinese market has also impacted the supply-demand dynamics in the memory market.

Missed AI Opportunity

Amidst the sluggish chip market, AI emerged as the only bright spot. However, Samsung faced difficulties in sourcing the high-end semiconductor components required to supply NVIDIA's AI chipsets, making it more vulnerable to the decline in traditional chip demand in PCs and smartphones. In contrast, SK Hynix and TSMC reported strong third-quarter profit performance, primarily driven by substantial sales of AI chips to NVIDIA. Notably, SK Hynix achieved a record operating profit of 7 trillion won (approximately $5.07 billion) in the third quarter.

Samsung faces intense competition not only in its core memory chip business but also in the foundry business, where it designs and manufactures logic chips for other clients. According to analysts, Samsung Electronics' logic chip business experienced expanding losses in the third quarter.

Other Business Performance

In the Mobile Display business (SDC), Samsung Electronics achieved comprehensive revenue of 8 trillion won (approximately $5.8 billion) in the third quarter, with an operating profit of 1.51 trillion won (approximately $1.1 billion). Regarding the Mobile (MX) and Networks businesses, Samsung Electronics recorded a combined revenue of 30.52 trillion won (approximately $22.1 billion) in the third quarter, with an operating profit of 2.82 trillion won (approximately $2 billion). In the Visual Display business, Samsung Electronics generated comprehensive revenue of 14.14 trillion won (approximately $10.2 billion) in the third quarter, with an operating profit of 0.53 trillion won (approximately $384 million).

Samsung anticipates limited profit growth for the third quarter, as the momentum in the chip division will be offset by the sluggish performance of "TV" businesses (broadly encompassing smartphones, televisions, home appliances, and other consumer electronics), although the company did not provide further details.

Apology for Underperforming Results

Samsung's third-quarter results were slightly above the preliminary forecast released earlier this month. Notably, Samsung issued a rare public apology for the underperformance, citing "delays" in the delivery of advanced chips to an unnamed major client, coupled with pressure from increased traditional chip supply from Chinese competitors.

Investment Plans

Sources suggest that Samsung has delayed accepting deliveries from Dutch chip equipment manufacturer ASML in preparation for the upcoming launch of its advanced chip manufacturing facility in Texas, but it has yet to secure any major customer orders for the project.

Overall, Samsung Electronics' third-quarter earnings report reveals the challenges the company faces in its chip business recovery, particularly in its failure to seize opportunities in the AI space. Although the company witnessed growth in other business segments, the weakness in the chip business will continue to impact Samsung Electronics' overall performance. Moving forward, Samsung Electronics needs to address its chip supply chain issues, strengthen its AI chip research and development, and boost production to maintain its leading position in the highly competitive chip market.