Samsung Electronics’ office in Seoul’s Seocho District. (Yonhap)

 
Samsung Electronics is expecting a third-quarter operating profit of around 9 trillion won (US$6.8 billion), unable to showcase a recovery in performance despite the artificial intelligence-fueled boom in the semiconductor industry and lagging behind in the chip market.
 
This delay seems to be the result of Samsung’s struggle in the high-bandwidth memory (HBM) race for AI chips and various internal and external troubles. Furthermore, Samsung’s mid- to long-term prospects seem even more ominous, as the cards it should’ve accumulated during the upturn have fallen short of expectations.
 
With Samsung stock prices continuing to linger at the 60,000 won mark, executives issued an uncharacteristic apology.
 
Earnings shocks during a semiconductor boom?
 
According to Samsung’s estimated operating profit released Tuesday, sales for the third quarter of 2024 (July-September) reached 79 trillion won while operating profit amounted to 9.1 trillion won, showing a 7% increase in sales but a 13% decrease in operating profit compared to the previous quarter. This is the first time Samsung Electronics’ operating profit has receded since the semiconductor industry began its upswing in 2024.
 
These numbers failed to meet the already low expectations of the market. Security firms, who forecast operating profits of 13 trillion to 14 trillion won, lowered their estimates to 10 trillion won beginning in September. The average forecast of operating profits compiled by FnGuide, a financial information and solutions company, on Monday was 10.717 trillion won.
 
Nose-diving performance is attributed mainly to the struggling semiconductor industry. Analysts estimate that the operating profit of the semiconductor division fell from 6.4510 trillion won in the second quarter of 2024 to 4 trillion won in the third. Many analysts believe that the decline was due to one-time factors such as the change in provisions related to performance-based incentives and the reduction of the recovery of inventory write-downs, which boosted operating profit by more than 1 trillion won in the second quarter.

The recovery of inventory write-downs refers to when the market value of inventory that had previously dropped recovers, which is then added as a profit to the income statement. The depreciation of the won-dollar exchange rate may have also dragged down numbers.
 
Samsung’s lack of technological competitiveness is evident in its third quarter. Most noticeable is its sluggishness in high-bandwidth memory, which is used for AI chips. Samsung declared Tuesday, “Regarding the fifth-generation high-bandwidth memory (HBM3E), we are facing delays in its commercialization for major customers,” meaning that it is yet to deliver large quantities to US’ Nvidia.
 
When we consider that the memory boom is relying heavily on AI, this is not a problem to be dismissed. Noticeable slowdowns in sectors apart from AI, such as smartphones and PCs, have been witnessed in recent years due to prolonged lack of demand and China’s aggressive low-cost tactics.
 
Samsung has probably stayed in the red when it came to its foundry business. Analysts believe that its foundry business may have logged an operating loss of over 1 trillion won of the 5 trillion won profit from the memory division. Experts say that the yield (the percentage of the total number of chips produced to the maximum chip count on one wafer) is still so low that the more products the foundry makes, the bigger the deficit.
 
Continued cloudy horizons in Q4, surprise apologies from executives
 
The future of Samsung Electronics after the fourth quarter seems as bleak, with neither high-bandwidth memory nor its foundry business, which have been blamed for its poor performance, expected to improve in the short term. The stock market has also lowered its expectations, with the latest forecast for Samsung’s fourth-quarter operating profit at 12 trillion won, a much lower number than the estimate made a month ago: 14 trillion won.
 
Samsung’s disappointing performance during a memory boom is quite significant. As the semiconductor manufacturing industry requires regular large-scale investments, it is important to procure enough funds during an upswing, but Samsung is stopping short and failing to recharge its metaphorical bullets. 

In the past, Samsung earned annual operating profits of up to 50 trillion won during the semiconductor boom, but in 2024, it will struggle to exceed 40 trillion; a stark contrast to SK Hynix, which is winning in the high-bandwidth memory field and is expected to record its largest operating profit ever in 2024.

It’s likely that all this factored into the unprecedented issuance of an apology that mentioned “fundamental competitiveness” by the electronics maker’s management.
 
Jun Young-hyun, the head of the Device Solutions division that oversees Samsung’s semiconductor business, put out a statement on Wednesday that offered “deep apologies” to stockholders for failing to meet expectations with operating profits. 

Market assessments of Samsung Electronics have also been stingy. Its stock price fell 1.1% from the day before on Wednesday, closing at 63,000. At one point following the earnings guidance announcement, it fell to as low as 59,900. 

“This isn’t a chip winter, but it is winter for Samsung Electronics,” said Noh Geun-chang, the head of the research center affiliated with Hyundai Motor Securities. Noh suggested that it would be “realistic” for Samsung to pull out a comeback from behind with the sixth-generation HBM4, after 2026. 

By Lee Jae-yeon, staff reporter

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