Samsung is anticipated to report a notable increase in quarterly profit, largely due to improving demand for its chips. However, this demand is showing signs of contracting, with the South Korean multinational appearing to have failed to have fully capitalised on the growth in artificial intelligence (AI) technology, reported Reuters.
According to estimates from 29 analysts compiled by LSEG SmartEstimate, Samsung’s operating profit for the third quarter (Q3) ending 30 September 2024 is expected to be about KRW10.33 trillion ($7.67bn). This would represent a rise from KRW2.43 trillion in the same period last year, but only a small change from the KRW10.44 trillion recorded in the prior quarter.
The global semiconductor market is still recovering from last year’s downturn, thanks largely to increased demand for chips used in AI servers. At the same time, demand for more traditional chips, used in smartphones and personal computers, has started to weaken, according to analysts.
Samsung has been attempting to narrow the gap with SK hynix and Micron Technology in supplying AI chips to Nvidia. Meanwhile, Samsung is also encountering growing competition from Chinese manufacturers in the production of commodity chips.
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The South Korean company’s primary chip division is projected to report an operating profit of KRW5.5 trillion, improving from the prior year but falling 15% from the previous quarter, partially due to provisions for employee bonuses.
Analysts suggest that Samsung’s late entry into the AI chip market has been a factor in this decline. Furthermore, its reliance on China and traditional mobile chips has made the company more vulnerable to geopolitical risks and declining demand.
Samsung’s non-memory chip business, which includes chip design and contract manufacturing, is expected to continue operating at a loss in Q3, as it struggles to compete with the Taiwan Semiconductor Manufacturing Company (TSMC).
Additionally, reports surfaced last month indicating that Samsung is reducing up to 30% of its overseas workforce in some divisions, highlighting the difficulties it faces.
Analysts estimate that Samsung’s mobile and network businesses will report an operating profit of KRW2.6 trillion in Q3, marking a 20% decrease compared to the previous year.
Samsung’s share price has dropped by 23% this year, in contrast to SK Hynix’s 23% increase. The former is scheduled to release its preliminary third-quarter earnings report this week, with full financial results to be published later this month.
In the previous quarter ended 30 June 2024, Samsung’s consolidated revenue grew by 23.4% to KRW74.07 trillion. This was attributed to the favourable memory market conditions that led to an increase in the average sales price (ASP). Besides, the company’s strong sales of organic light-emitting diode (OLED) panels also contributed to the Q2 2024 results.
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