Samsung’s profit recovery is likely to weaken in Q3
Karnataka News
Samsung Electronics (005930. KS) is projected to report a fourfold increase in quarterly profit on Tuesday due to rising demand for chips. However, the company’s recovery is diminishing as it needs to capitalize on the artificial intelligence boom.
Samsung, the leading global manufacturer of memory chips, smartphones, and TVs, is expected to report an operating profit of approximately 10.33 trillion won ($7.67 billion) for the quarter ending September 30. This estimate is based on an average from 29 analysts using LSEG SmartEstimate, which favors those with a track record of accuracy.
This marks an increase from 2.43 trillion won a year ago but is relatively unchanged from the 10.44 trillion won reported in the prior quarter.
Analysts noted that while the global semiconductor market is rebounding from last year’s decline, fueled by demand for chips in AI servers, the recovery for traditional chips used in smartphones and PCs is losing momentum.
The South Korean company is working hard to keep pace with smaller competitors SK Hynix (000660.KS) and Micron (MU.O) in the race to provide advanced AI chips to Nvidia (NVDA.O). SK Hynix, a significant player in the semiconductor industry, has been gaining ground in the AI chip market, posing a threat to Samsung’s dominance. Meanwhile, Samsung is also contending with increasing competition from Chinese rivals in the commodity chip sector.
Samsung’s core chip division is anticipated to shift to an operating profit of 5.5 trillion won compared to the previous year. This figure, while representing a 15% decline from the prior quarter, is still a significant achievement for the company. However, this decline is partly due to the company allocating funds for bonuses, according to estimates from 10 analysts gathered by Reuters.
Analysts suggest that Samsung’s delayed entry into the higher-margin AI chip market, a crucial area of growth, has increased its vulnerability to geopolitical risks and sluggish demand. This, coupled with its greater reliance on China and conventional mobile chips compared to its competitors, is a cause for concern.
“Samsung is more likely to lose the title of number 1 DRAM vendor in case of a softer commodity DRAM market,” Daniel Kim, an analyst at Macquarie Equity Research, said in a recent note, referring to dynamic random access memory (DRAM) chips that are widely used in computers and smartphones.
“That is, the conventional DRAM supply glut will likely hurt Samsung far more than SK Hynix.”
The negative forecast arrives after Micron predicted last month that its first-quarter results would be better than Wall Street’s expectations. Micron announced its highest quarterly revenue in over ten years, thanks to the strong demand for memory chips in the AI industry.
Samsung Faces Challenges in Non-Memory Chips and Sales Declines
Analysts estimate that Samsung’s non-memory chip division, which includes chip design and contract manufacturing, continued to incur losses in the third quarter. This struggle is largely due to the fierce competition from TSMC (2330.TW), the industry leader that counts Apple (AAPL.O) and Nvidia among its clients.
According to a September report by Reuters, Samsung is reducing its overseas workforce by up to 30% in certain divisions, highlighting the difficulties the company is facing.
Analysts believe that sales of premium foldable phones are expected to fall short of expectations, negatively impacting the company’s profits as it faces growing competition from Chinese rivals like Huawei. According to estimates from 10 analysts gathered by Reuters, Samsung’s mobile phone and network divisions reported 2.6 trillion won in operational profit in the third quarter, a significant 20% decline compared to the same period last year.
Samsung Electronics shares have dropped 23% this year, while SK Hynix has seen a 23% increase.
The South Korean company will release its preliminary earnings for the third quarter on Tuesday, followed by the complete figures later this month.
($1 = 1,336.3900 won)
Tech News That Matters! Click Here to Stay Informed!