Samsung Electronics, the world’s top memory chip maker, is anticipated to forecast a slowdown in profit growth for the fourth quarter due to challenges in meeting Nvidia’s strong demand for Artificial Intelligence (AI) chips. The South Korean tech giant will release its estimates on Wednesday, which are expected to show a significant decline from the previous quarter.
Slowing Profit Growth: A Concern for Samsung
Samsung is expected to report an operating profit of 8.2 trillion won ($5.6 billion) in the fourth quarter, up from a low base of 2.8 trillion won a year earlier but down from 9.18 trillion won in the preceding quarter. However, a slew of analysts have reduced their earnings estimates in recent weeks, with some forecasting operating profit to fall below 8 trillion won.
Nvidia’s AI Chip Demand Weighs on Samsung
Samsung had made a rare apology in October 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 updates since then, and delays in providing Nvidia with high-end chips have continued to impact its earnings, according to analysts.
Changes at the Top: New Leadership in Chip Division
In November, Samsung replaced some of its top executives in the chip division and named its chip division chief co-CEO, giving him direct control over its struggling memory chip business. The changes were aimed at reviving the company’s fortunes in the memory chip market.
Share Price Plunges: Samsung Lags Behind Market
Shares of Samsung, South Korea’s most valuable stock, plummeted 32% last year, lagging behind the wider market’s 10% loss. In contrast, Samsung’s cross-town rival, SK Hynix, a major supplier of advanced AI memory chips to Nvidia, is expected to post record earnings for the fourth quarter.
Pressure on Chip Prices: A New Challenge
Lackluster demand for traditional chips used in mobile phones and PCs has put pressure on chip prices. Rising output from Chinese rivals has also contributed to the decline in chip prices. According to estimates from researcher TrendForce, 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.
Offset by Weaker Local Currency
The positive impact of the weaker local currency on repatriated earnings from overseas has been offset by the decline in chip prices. 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 advocated for higher tariffs on imports.
Continued 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. Analysts said that the decline in demand for traditional chips has further exacerbated the company’s struggles in this segment.
Estimates and Earnings Release Plan
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. The company’s announcement comes amidst a challenging backdrop for the chip industry, where slowing demand and rising competition have put pressure on margins.
What This Means for Samsung
The slowdown in profit growth reported by Samsung is a concern for investors and analysts alike. The company’s struggles to meet Nvidia’s strong demand for AI chips have weighed heavily on its earnings, while the decline in chip prices has further eroded its margins. Despite the changes at the top, it remains to be seen whether these efforts will pay off in the short term.
Conclusion
The fourth quarter has been a challenging period for Samsung Electronics, with the company struggling to meet Nvidia’s demand for AI chips and facing pressure on chip prices due to lackluster demand and rising competition. As the company announces its estimates on Wednesday, investors and analysts will be watching closely to see if these challenges have had a lasting impact on its profit growth.
References
- TrendForce: DDR4 DRAM Chip Prices Expected to Decline by 15% in Q1 2023
- Reuters: Samsung Electronics Posts Lower Quarterly Profit, Misses Estimates
- Nikkei Asia: Nvidia’s AI chip demand weighs on Samsung’s earnings
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