SEOUL (Reuters) – Samsung Electronics, the world’s top memory chip maker, is expected to forecast its profit growth continued to slow in the fourth quarter as it struggled to keep up with Nvidia’s strong demand for AI chips.
Slowdown in AI Chip Demand Weighs on Samsung’s Earnings
Samsung, also the world’s largest smartphone and TV maker, is expected to estimate its operating profit rose to 8.2 trillion won ($5.6 billion) in the quarter ended December, up from a low base of 2.8 trillion won a year earlier but down from 9.18 trillion won in the preceding quarter.
A slew of analysts have cut their earnings estimates in recent weeks, with some expecting operating profit to fall below 8 trillion won. This slowdown is attributed to several factors, including:
- Lackluster demand for traditional chips: The demand for traditional chips used in mobile phones and PCs has been declining, putting pressure on chip prices.
- Rising output from Chinese rivals: Chinese companies have increased their production of memory chips, which has led to a surplus in the market and put downward pressure on prices.
- Delays in supplying AI chips to Nvidia: Samsung’s delays in providing high-end chips to Nvidia have weighed on its earnings.
Samsung’s Efforts to Revive Its Chip Business
In October, the South Korean company made a rare apology for its disappointing third-quarter performance and said it was making progress in supplying AI chips to Nvidia. However, it has not provided any update since then.
To address the slowdown, Samsung replaced some of its top executives in the chip division in November. The company also named its chip division chief co-CEO and bestowed him direct control of its struggling memory chip business.
Samsung’s Share Price Slumps
Shares of Samsung, South Korea’s most valuable stock, slumped 32% last year, lagging 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.
PRICES UNDER PRESSURE
The 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.
Weak Demand for Consumer-Centric Products Impacts Micron’s Business
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 Samsung rival’s business.
Samsung to Announce Estimates on Fourth-Quarter Revenue and Operating Profit
Samsung will announce estimates on fourth-quarter revenue and operating profit on Wednesday. The company plans to release detailed results including a breakdown of earnings for each of its businesses in late January.
Conclusion
The slowdown in AI chip demand has weighed on Samsung’s earnings, despite the company’s efforts to revive its chip business. As the market continues to evolve, it will be interesting to see how Samsung responds to these challenges and whether it can regain its position as a leader in the memory chip industry.
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