These are not the easiest times for Samsung’s chip manufacturing division. Recently, analysts estimated that Samsung Foundry would record big operating losses. Such losses would affect Samsung Electronics’ overall earnings report. Now, the preliminary official results are official, and Samsung has apologized to investors for falling short of expectations while its memory chip business loses steam in the AI era.
Samsung Electronics sales rose, but profit fell short of expectations
According to analysts, Samsung Foundry and Samsung System LSI will record operating losses of 2.08 trillion won (about $1.55 billion) this year. In 2023, these divisions have already reported losses of 3.18 trillion won (about $2.4 billion). While the company’s preliminary financial results do not go into specific details about Samsung Foundry and Samsung System LSI, they confirm the impact on the company’s overall results. Full results will be available on October 31.
Investors had estimated that Samsung’s operating profit for this fiscal year would reach 10 trillion won (about $7.42 billion). However, the company reported 9.1 trillion won (about $6.75 billion). Interestingly, the reported profit represents a year-over-year increase of 274.5%. Q3 2024 brought 17.2% growth in sales compared to Q3 2023. But overall results are significantly below expectations. This is reflected in a loss of confidence by shareholders and potential capital leakage.
While analysts estimate notable operating losses for the Samsung Foundry and Samsung System LSI divisions, others, such as Samsung Device Solutions (DS), decreased their financial performance during the last quarter. The company cites one-off costs, such as incentive provisions, as the main reason. So, theoretically, this is something Samsung had already budgeted for. However, there are also adverse external factors, such as the exchange rate effect. Samsung Device is the division in charge of providing memory to third parties, among other key components.
Samsung apologizes for bad results while AI memory chips division lags behind competitors
Currently, Samsung boasts of being the world’s largest memory chip manufacturer. However, even that privileged position is not enough in the face of tough competition in today’s market. In the artificial intelligence era, memory chips are among the most important components. So, companies that develop the best hardware will gain a competitive advantage. SK Hynix, a Korean memory supplier, was the first to produce 36 GB 12-layer HBM3E chips.
Competition from Korean and Chinese suppliers is taking away some of the demand for high-bandwidth memory (HBM) AI chips from Samsung. The company’s latest development in the segment, HBM3E 8Hi, has been delayed and is still undergoing quality testing by NVIDIA. As for the next generation, HBM3E 12Hi, companies such as SK Hynix and Micron are showing faster progress.
Samsung’s plan to address the situation
Jeon Young-hyun, Samsung’s vice chairman, offered hints on how the company will try to address the situation. “I believe that only new technologies that do not exist in the world and perfect quality competitiveness are the only ways for Samsung Electronics to make a comeback,” wrote Jeon in an apology to investors.
Basically, Samsung wants to get ahead of the industry by pioneering more products and technologies. They will also focus more on developing long-term solutions rather than short-term ones. Lastly, Samsung will be more open in terms of communication with a rethought organizational culture.
