Samsung has announced it is prioritizing top-quality chip production and making strides on a new deal in a move it hopes will bolster sales and improve its investor outlook after its semi-conductor division reported a 40% drop in profit last quarter.
The news, reported by the company’s Executive Vice-President Jaejune Kim, raised Samsung’s stock by more than 3% overnight. It follows a patch of investor uncertainty due to AI chip delays and layoffs at the company.
Here’s how the struggling company plans to move forward.
Major Customer to Samsung’s Rescue
Samsung has spent much of the year trying to keep up with demand and may now finally be on the front foot. Although the identity of a potential new client hasn’t been officially confirmed, sources report that Samsung is testing its advanced HBM3E memory chips with Nvidia, a company that holds about four-fifths of the global AI chip market.
Samsung’s chips have reportedly passed Nvidia’s tests, raising speculation about a long-term partnership that could solidify Samsung’s position in the AI chip sector and potentially attract additional customers.
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“While there was a delay in commercializing HBM3E sales as we had flagged earlier, we have made meaningful progress in the product’s qualification test process with a major customer,” Samsung Executive Vice-President Jaejune Kim told analysts. “As a result, we expect improved (HBM3E) sales in the fourth quarter and plan to expand sales to multiple customers.”
Cautious Outlook for Samsung
After Samsung’s announcements, shares in competitor SK Hynix fell by 4.6%, thought to be brought on by fears of possible HBM chip oversupply.
While the AI sector is thriving, the broader semiconductor market remains slow, with Samsung aiming to offset slowing demand for traditional chips with sales of AI-optimized, high-bandwidth memory products.
Though the company’s $6.6 billion operating profit slightly surpassed earlier estimates, it still missed market expectations. This led to recent apologies for its underwhelming earnings, attributing the slowdown to delays in advanced chip sales and increased competition from Chinese firms supplying traditional chips.
“It’s anticipated that it will take some time before the business performs as expected.” Baik Gil-hyun, analyst at Yuanta Securities.
More Challenges for Samsung
In addition to memory chips, Samsung’s foundry business, which designs and produces custom chips for clients, faced widening losses in the third quarter. Sources report that Samsung has delayed deliveries of high-end chipmaking equipment from ASML for its Texas factory, awaiting a major customer to move forward with the project.
Samsung’s mobile devices division also faced challenges, with a profit decline to $2 billion in the third quarter from $2.4 billion a year earlier.
Looking forward, the electronics behemoth anticipates growth in AI-related chip demand but expects limited earnings growth overall due to increasing competition in consumer electronics during the busy year-end season.
