Samsung’s Profit Takes a Hit: High-End Chip Struggles and Slowing Demand
The world’s largest memory chip, smartphone, and TV maker, Samsung Electronics, has announced a significant miss in its preliminary fourth-quarter operating profit, falling short of estimates by a substantial margin. The South Korean tech giant’s earnings were heavily impacted by the high costs associated with providing advanced semiconductors to Nvidia, as well as rising research and development expenses.
Ramping Up Manufacturing Capacity Proves Challenging
Samsung’s efforts to increase its manufacturing capacity for high-end chips have resulted in substantial costs, which have dented its earnings. Additionally, the company has struggled to meet Nvidia’s requirements, with the graphics processing unit (GPU) maker’s CEO, Jensen Huang, stating that Samsung needs to “engineer a new design” to supply high-bandwidth memory (HBM) chips.
Slowing Demand for Conventional Memory Chips
The demand for conventional memory chips used in PCs and mobile phones has slowed, further contributing to Samsung’s profit decline. This downward trend has been a significant challenge for the company, which has seen its earnings impacted by the decreased demand.
Preliminary Revenue Falls Short of Estimates
Samsung’s preliminary revenue for the fourth quarter came in at 75 trillion won, slightly lower than analysts’ estimates. This shortfall, combined with the company’s struggles in the high-end chip market, has resulted in a significant profit decline.
Analysts Weigh In on Samsung’s Performance
Greg Noh, an analyst at Hyundai Motor Securities, attributed Samsung’s profit decline to one-off costs, as well as disappointing chip and display earnings. Lee Min-hee, an analyst at BNK Investment & Securities, noted that while there are concerns about Samsung’s competitiveness, chip demand may have already bottomed out, and smartphone demand in China may gradually improve.
Shares React to Samsung’s Profit Decline
Samsung’s shares finished 3.4% higher, with analysts attributing the gain to the sense that the company’s woes had already been factored in and were unlikely to get worse. However, the company’s shares slumped 32% last year, far more than the wider market.
Rising Competition in the Chip Market
Samsung’s division that designs and manufactures logic chips was hit by slower mobile phone demand, lower utilization rates at its factories, and higher research and development costs. The division may have widened losses to about $1.5 billion in the fourth quarter, according to analysts.
Devices Business Earnings Drop
Earnings for Samsung’s devices business, which includes mobile phones, TVs, and household appliances, dropped due to a lack of new mobile phone model launches and increased competition. Analysts noted that the company’s mobile division earnings may have declined year on year due to lower sales for its premium foldable phones.
Detailed Results to Be Released
Samsung will release detailed fourth-quarter results on January 31, providing a clearer picture of the company’s performance.
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