The semiconductor industry (Image courtesy of Yonhap)

SEOUL, Dec. 23 (Korea Bizwire) – The projected fourth-quarter earnings for South Korea’s semiconductor leaders, Samsung Electronics and SK Hynix, have been revised downward as prolonged economic uncertainty weighs on IT demand.

A polarized market driven by robust growth in artificial intelligence (AI) chips contrasts sharply with declining legacy semiconductor demand, creating headwinds for the industry.

Samsung’s Earnings Dip Amid Legacy Memory Weakness

According to estimates from market analysts compiled by Yonhap Infomax, Samsung Electronics is expected to post an operating profit of 8.58 trillion won ($6.4 billion) for Q4 2023.

While this represents a more than threefold increase compared to the same period last year, it marks a 6.6% decline from the previous quarter and falls short of earlier projections of 9.77 trillion won.

The company’s Device Solutions (DS) division, which includes its semiconductor operations, is anticipated to report quarterly earnings in the range of 3 to 4 trillion won, mirroring Q3 results.

Weakness in traditional IT markets like smartphones and PCs has intensified, leading to a sharper decline in profits from Samsung’s core DRAM and NAND memory products.

Global memory prices have continued to slide, exacerbated by aggressive pricing strategies from Chinese competitors like CXMT. Even as AI-driven demand for high-bandwidth memory (HBM) grows, HBM still accounts for a small portion of Samsung’s overall semiconductor revenue.

“Delays in HBM3E mass production for Nvidia and worsening supply-demand dynamics in general-purpose DRAM are expected to weigh on Samsung’s results for the quarter,” said Park Yoo-ak, an analyst at Kiwoom Securities.

SK Hynix Expected to Outperform Samsung in Semiconductor Earnings

Meanwhile, SK Hynix, a leader in the HBM market, is poised to achieve another record quarter with Q4 operating profits projected at 7.77 trillion won, up 10.6% from the prior quarter. The company is likely to surpass Samsung’s semiconductor earnings for a second consecutive quarter and may even lead on an annual basis.

Despite strong performance in HBM, SK Hynix has not been immune to the general downturn in legacy memory pricing. “Weakness in mobile and PC demand has deepened beyond initial expectations, offsetting gains from the AI server market,” said Kim Kwang-jin, an analyst at Hanwha Investment & Securities.

Micron’s Struggles Signal Broader Industry Woes

Adding to the pessimism, Micron Technology, a key global player in memory semiconductors, recently issued a bleak Q2 outlook. The U.S. firm forecasts $7.9 billion in revenue for the quarter ending February 2025, over 10% below Wall Street expectations, citing ongoing inventory corrections among smartphone and PC manufacturers.

While Micron has seen strong growth in HBM revenue, overall performance is being dragged down by legacy product weakness. Analysts at Hana Securities predict a 5% decline in DRAM and NAND bit growth, highlighting continued challenges across the sector.

Outlook for the Industry

The semiconductor industry faces a delicate balancing act as companies like Samsung and SK Hynix navigate diverging market dynamics.

While AI-related products offer a path to growth, prolonged softness in traditional IT segments and competitive pressures underscore the challenges ahead. As the industry recalibrates, all eyes are on 2024 for signs of a meaningful recovery.

Kevin Lee (kevinlee@koreabizwire.com)