Samsung Electronics is projected to report a more than four-fold increase in its quarterly profit on Tuesday, driven by improving demand for chips.
However, analysts warn that the pace of recovery is slowing, particularly as the company struggles to capitalize on the booming artificial intelligence (AI) market.
According to an average from 29 analysts using LSEG SmartEstimate, Samsung’s operating profit for the quarter ending September 30 is expected to reach 10.33 trillion won ($7.67 billion), up from 2.43 trillion won a year earlier. This figure reflects a slight decrease from the 10.44 trillion won reported in the previous quarter.
The global semiconductor market is on the mend following last year’s downturn, primarily due to rising demand for chips used in AI servers. However, the recovery in demand for conventional chips used in smartphones and PCs has begun to stagnate, analysts noted.
Samsung, the leading manufacturer of memory chips, smartphones, and TVs, is in a race to catch up with competitors like SK Hynix and Micron in supplying high-end AI chips to Nvidia, all while facing increased competition from Chinese firms in the commodity chip market.
Samsung’s crucial chip division is expected to generate an operating profit of 5.5 trillion won, a significant improvement from the previous year but a 15% decline from the prior quarter, partly due to provisions for employee bonuses, according to estimates compiled by Reuters.
The company’s slower response to the lucrative AI chip market, combined with its greater exposure to China and traditional mobile chips compared to its rivals, has heightened its vulnerability to geopolitical risks and weak demand. Daniel Kim, an analyst at Macquarie Equity Research, stated, “Samsung is more likely to lose the title of number 1 DRAM vendor in case of a softer commodity DRAM market,” referring to dynamic random access memory (DRAM) chips prevalent in computers and smartphones. He noted that the ongoing supply glut in conventional DRAM would likely impact Samsung more severely than SK Hynix.
In contrast, Micron recently forecasted first-quarter results exceeding Wall Street expectations and reported its highest quarterly revenue in over a decade, fueled by strong demand for its memory chips within the AI sector.
Additionally, analysts believe that Samsung’s non-memory chip operations, which include chip design and contract manufacturing, continued to incur losses in the third quarter, struggling to compete with industry leader TSMC, which services clients like Apple and Nvidia.
In a further indication of its challenges, Samsung is reportedly reducing its overseas workforce by up to 30% across certain divisions. Sales of its premium foldable phones are also expected to underperform, adding pressure to the company’s profits as competition from Chinese rivals like Huawei intensifies.
Estimates indicate that Samsung’s mobile and network businesses will record an operating profit of 2.6 trillion won in the third quarter, down one-fifth from the previous year.
Samsung Electronics shares have dropped 23% this year, trailing the 23% gain of SK Hynix. The company will release its preliminary third-quarter earnings on Tuesday, with full figures scheduled to follow later this month.
