Samsung Electronics, the world’s leading memory chip maker, is grappling with a slowdown in profit growth, particularly as it faces challenges in meeting the strong demand for AI chips driven by Nvidia. Despite experiencing a significant rebound in operating profit from a low base in the same quarter the previous year, the company’s earnings are still expected to be lower than the preceding quarter. Analysts have adjusted their forecasts downward in recent weeks, with some predicting that operating profits may even fall below 8 trillion won.

For the fourth quarter ending December, Samsung is estimated to report operating profits of 8.2 trillion won ($5.6 billion), a notable improvement from 2.8 trillion won during the same period last year. However, this still marks a decline from the 9.18 trillion won recorded in the third quarter of 2024. The sharp drop in profits compared to earlier quarters highlights the difficulties Samsung is encountering in its semiconductor business, particularly in meeting demand for advanced AI chips.

Samsung’s struggles in the chip market come as it faces fierce competition from rivals, especially in the field of artificial intelligence. Nvidia, a major player in AI chips, has been aggressively expanding its demand for high-end memory chips, but Samsung has faced delays in meeting this demand. This has been a consistent issue for the company, and the absence of updates on its progress in supplying Nvidia has further impacted investor confidence. As a result, Samsung has been forced to take drastic internal actions, including replacing top executives in its chip division and appointing a new co-CEO with direct control over the struggling memory chip business.

This leadership overhaul signals the company’s commitment to addressing its challenges in the semiconductor market. However, the impact of these changes remains to be seen, as the company continues to face both internal and external pressures. In contrast to Samsung’s situation, its domestic competitor, SK Hynix, which also supplies advanced memory chips to Nvidia, is expected to post record earnings for the fourth quarter. This stark contrast underscores the growing competitive divide between Samsung and its rivals in the semiconductor sector.

One of the major factors affecting Samsung’s performance is the ongoing pressure on chip prices. The demand for traditional chips used in mobile phones and PCs has been lackluster, exacerbated by rising output from Chinese competitors. Prices for DDR4 DRAM chips, which are commonly used in personal computers, fell as much as 13% in the fourth quarter of 2024, and further declines of around 15% are expected in the current quarter. This decline in chip prices has had a significant negative impact on Samsung’s chip earnings, offsetting any positive effects from a weaker South Korean won, which typically boosts the company’s repatriated earnings from overseas.

The depreciation of the won has added another layer of complexity to Samsung’s business environment. In December, the won hit its weakest level in 15 years, largely due to political unrest in South Korea following President Yoon Suk Yeol’s controversial martial law decree. This political instability, combined with the broader global economic challenges, has created an uncertain outlook for Samsung as it attempts to navigate these turbulent conditions.

Further compounding Samsung’s challenges is the continued poor performance of its logic chip business. Samsung’s logic chips, which are designed by customers such as Qualcomm, have been underperforming and are expected to continue incurring losses. This segment’s underperformance is having a detrimental effect on the company’s overall chip earnings, as it is a significant contributor to the company’s semiconductor division.

The combination of these factors—delayed shipments of AI chips to Nvidia, falling prices of traditional memory chips, competition from Chinese rivals, and weak demand for logic chips—has put immense pressure on Samsung’s semiconductor business. As the company prepares to announce its fourth-quarter earnings estimate, there is growing concern about its ability to maintain its position as a leader in the semiconductor industry.

The release of detailed financial results, including a breakdown of earnings from each of Samsung’s various business segments, is scheduled for later this month. This will provide more clarity on how the company’s other divisions, such as smartphones and televisions, are performing. However, given the challenges in its core semiconductor business, Samsung’s overall financial outlook appears uncertain for the near term.

In summary, Samsung Electronics is facing significant challenges in its semiconductor business, with issues ranging from delays in AI chip shipments to falling prices and increased competition. While the company’s operating profit has risen from a low base, it remains below previous quarters, and analysts have lowered their earnings forecasts. As Samsung navigates these difficulties, it must focus on strengthening its semiconductor business to stay competitive and regain investor confidence in the coming months.

(Adapted from Business-Standard.com)