Samsung says it has made progress in AI chip shipments after disappointing results

The executive’s comments on the earnings call helped lift Samsung shares more than 3% on Thursday, erasing earlier losses.

Reuters

October 31, 2024, 12:50

Last modified: October 31, 2024 12:52 pm.

People walk past the Samsung Electronics booth during CES 2024, the annual consumer electronics trade show, in Las Vegas, Nevada, USA, January 9, 2024. Photo: REUTERS/Steve Marcus/File Photo

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People walk past the Samsung Electronics booth during CES 2024, the annual consumer electronics trade show, in Las Vegas, Nevada, USA, January 9, 2024. Photo: REUTERS/Steve Marcus/File Photo

Samsung Electronics said it will focus on making high-performance chips and is making progress on a major supply deal as it seeks to allay investor concerns about its semiconductor business, which saw profit fall 40% in the quarter.

The executive’s comments on the earnings call helped lift Samsung shares more than 3% on Thursday, erasing earlier losses. Shares of major chipmakers have been among the worst performers this year, losing nearly a quarter of their value as the South Korean firm struggled to catch up with rivals TSMC and SK Hynix, which posted record third-quarter profits amid an artificial intelligence boom.

“Despite the delay in commercialization of HBM3E sales, as we noted previously, we have made significant progress in the product qualification process with a major customer,” Samsung Executive Vice President Jaejoong Kim told analysts, referring to the high-performance memory chips used. to create artificial intelligence chipsets.

“As a result, we expect (HBM3E) sales to improve in the fourth quarter and plan to expand sales to multiple customers.”

The company did not disclose the name of the main client, but analysts said the qualification test was conducted by Nvidia, which controls about 80% of the global AI chip market.

Earlier, Reuters also reported that Samsung’s HBM3E chips had been tested by Nvidia for use in processors from the American company.

“Samsung’s comments…suggest that the company is expected to finally supply HBM3E chips to Nvidia, clearing a major bottleneck in its HBM business,” said Ryu Young-ho, senior analyst at NH Investment & Securities.

Shares of SK Hynix fell 4.6% on Thursday on concerns about an oversupply of HBM chips following Samsung’s comments.

Artificial intelligence is the only bright spot in a sluggish chip market, but Samsung is struggling to supply high-quality semiconductors used in artificial intelligence chipsets, making it more vulnerable to sluggish demand for traditional chips used in PCs and smartphones.

“In the fourth quarter, although demand for memory (chips) for mobile devices and PCs may decline, growth in AI will keep demand at a steady level,” Samsung said in its earnings report.

“Against this backdrop, the company will focus on driving sales of high-bandwidth memory (HBM) and high-density products,” it said.

The world’s largest maker of memory chips, smartphones and TVs also warned on Thursday of limited profit growth in the current quarter due to increased competition in the consumer electronics segment during the year-end peak demand season.

Samsung’s operating profit for the July-September period was 9.2 trillion won ($6.66 billion), down from 2.4 trillion won a year earlier and 10.4 trillion won in the previous quarter.

The third-quarter result was slightly higher than Samsung’s preliminary estimate of 9.1 trillion won earlier this month, which was below market expectations at the time.

Samsung issued a rare apology this month for its disappointing earnings, citing “delays” in sales of its advanced chips and a surge in shipments of traditional chips from Chinese rivals.

SLOW CHIP RECOVERY

Samsung’s chip division posted an operating profit of 3.9 trillion won in the third quarter, compared with a loss of 3.8 trillion won a year earlier, but down from 6.45 trillion won in the previous quarter.

Samsung said its chip revenue was impacted by one-time costs such as employee incentives, as well as currency impacts from a weak dollar.

“Samsung is not commercializing HBM as effectively as its competitors, so its third-quarter results and fourth-quarter guidance did not meet market expectations,” said Baik Gil-hyun, an analyst at Yuanta Securities.

“It is expected that it will be some time before the business operates as expected.”

SK Hynix reported a record third-quarter operating profit of 7 trillion won thanks to the sale of artificial intelligence chips to Nvidia.

Samsung is struggling to compete with rivals not only in its core memory chip business, but also in its foundry business, which designs and produces logic chips for other customers. Analysts said Samsung’s logic chip business suffered a loss in the third quarter.

The company has delayed deliveries of ASML’s high-end chipmaking equipment for its upcoming Texas plant because it has yet to secure any major customers for the project, sources previously told Reuters.

Samsung’s third-quarter operating profit also fell to 2.8 trillion won from 3.3 trillion won a year earlier.