Samsung aims for AI chip recovery after disappointing Q3 results

Samsung Electronics is making strides in its semiconductor division, aiming to boost its presence in the competitive AI chip market following a significant drop in profits in the third quarter.

The South Korean tech giant reported an operating profit of 9.2 trillion won ($6.66 billion) from July to September, slightly above its preliminary estimate but down from 10.4 trillion won in the previous quarter.

The company’s chip division, crucial for its overall earnings, saw a stark decline in profit, plunging to 3.9 trillion won from 6.5 trillion won in Q2.

The decline in profits, approximately a 40% drop quarter-on-quarter, has raised concerns among investors, prompting a rare public apology from Samsung for its disappointing performance.

The company attributed its struggles to delays in the commercialization of high-bandwidth memory (HBM3E) chips, critical for AI applications, and increased competition from Chinese manufacturers offering traditional chips.

This has led to Samsung losing ground to rivals such as TSMC and SK Hynix, the latter having recently posted record earnings driven by AI chip sales.

During a recent earnings call, Samsung’s Executive Vice President Jaejune Kim expressed optimism about upcoming sales of HBM3E chips, mentioning progress in qualifying the product with a major client, widely believed to be Nvidia, which dominates the AI chip market with an estimated 80% share.

Analysts noted that the successful qualification of Samsung's HBM3E chips could signal a pivotal moment for the company's semiconductor ambitions, as Nvidia’s approval is essential for penetrating the AI chip sector.

In response to current challenges, Samsung is concentrating on producing high-end chips and expects improved sales in the fourth quarter.

The company acknowledged that while demand for memory chips in mobile devices and PCs may weaken, the burgeoning AI market would provide a buffer against overall sluggishness in chip demand.

Samsung's focus will now be on enhancing its offerings in the high-bandwidth memory segment, which is critical for AI and data center applications.

Samsung's challenges are compounded by a broader industry trend, where major competitors are thriving due to the surge in demand for AI-related technologies.

In contrast, Samsung's mobile division also reported a decrease in operating profit, further highlighting the tough landscape it faces.

As Samsung navigates this downturn, it is under pressure to adapt its operations and strategy.

The company recently made workforce adjustments, laying off staff in certain regions, and is exploring ways to enhance its technical competitiveness.

The semiconductor division's new head, Jun Young-hyun, emphasized the need for long-term improvements over short-term fixes to regain market leadership.

Looking ahead, Samsung's next steps will be crucial as it strives to recover from this setback.

The company is banking on its HBM3E chips to turn around its fortunes in the AI sector, an area that is increasingly viewed as the future of the chip market.

The full impact of its recent strategic changes will become clearer in the upcoming quarterly reports as Samsung aims to reposition itself in a rapidly evolving industry landscape.