Seoul, South Korea
Samsung Electronics, the world’s top memory chip maker, is expected to forecast on Wednesday that its profit growth continued to slow in the fourth quarter due to difficulties in meeting Nvidia’s strong demand for AI chips.
A Rare Apology from Samsung
In October, Samsung made a rare apology for its disappointing third-quarter performance and stated that it was making progress in supplying AI chips to Nvidia. However, the company has not provided any update since then, and delays in providing high-end chips to Nvidia have continued to weigh on its earnings, according to analysts.
Analysts Cut Earnings Estimates
A slew of analysts have reduced their earnings estimates for Samsung in recent weeks, with some expecting operating profit to fall below 8 trillion won. This is a significant concern for the company, as it has been struggling to meet the strong demand for AI chips from Nvidia.
Changes at the Top of Samsung’s Chip Division
In November, Samsung replaced some of its top executives in the chip division and named its chip division chief co-CEO with direct control over its struggling memory chip business. This move was aimed at revitalizing the company’s chip business, but it remains to be seen whether it will have a significant impact on the company’s earnings.
Samsung Shares Plummet
Shares of Samsung, South Korea’s most valuable stock, slumped 32% last year, lagging behind the wider market’s 10% loss. This is a clear indication that investors are losing confidence in the company’s ability to meet demand for its chips.
SK Hynix Posts Record Earnings
In contrast, Samsung’s cross-town rival, SK Hynix, is expected to post record earnings for the fourth quarter, analysts said. SK Hynix has been a major supplier of advanced AI memory chips to Nvidia and has been benefiting from the strong demand for these chips.
Lackluster Demand for Traditional Chips
The lack of demand for traditional chips used in mobile phones and PCs has put pressure on chip prices, according to analysts. U.S. chipmaker Micron Technology last month forecast quarterly revenue and profit below Wall Street estimates, sending shares lower as weak demand for consumer-centric products impacts the company’s business.
DDR4 DRAM Chip Prices Fall
Prices of DDR4 DRAM chips used in personal computers fell as much as 13% in the fourth quarter and are expected to decline another 15% in the current quarter, according to estimates from researcher TrendForce. This offset the positive impact of the weaker local currency that boosts repatriated earnings from overseas.
South Korean Won Drops to Weakest Level
The South Korean won dropped to its weakest level in 15 years in December after President Yoon Suk Yeol’s martial law decree triggered political turmoil and U.S. President-elect Donald Trump advocates higher tariffs on imports. This has put additional pressure on Samsung’s chip business.
Losses in Logic Chip Business
Samsung’s business of making logic chips designed by customers like Qualcomm is expected to continue to make losses, eroding its chip earnings, according to analysts. This is a significant concern for the company, as it may impact its ability to meet demand for its chips.
Release of Quarterly Results
Samsung will announce estimates on fourth-quarter revenue and operating profit on Wednesday, with a plan to release detailed results including a breakdown of earnings for each of its businesses in late January. This is an eagerly anticipated event, as investors are keenly interested in seeing how the company’s chip business has performed.
Sources:
- Samsung Electronics
- SK Hynix
- Micron Technology
- TrendForce
- Reuters
Note: This article was written by Hyunjoo Jin and edited by Anne Marie Roantree and Jamie Freed.