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Samsung Electronics has publicly apologized and acknowledged the corporate is in a “crisis” after releasing worse-than-expected profit forecasts on Tuesday.
The South Korean chip giant reported preliminary operating profit of 9.1 trillion won ($6.8 billion) for the third quarter, falling wanting market expectations of a profit of 10.3 trillion won, in response to LSEG SmartEstimates.
While expected operating profit almost tripled in comparison with the identical period last yr as a result of an increase in memory chip prices, it fell almost 13 percent in comparison with the second quarter of this yr.
The company's stock price has fallen nearly 30 percent up to now six months as concerns grow about its competitiveness in cutting-edge chips utilized in artificial intelligence systems.
“The Samsung Electronics leadership team would love to apologize for our failure to fulfill your expectations with our performance,” Young Hyun Jun, the top of Samsung’s chip division, wrote in a letter to customers, investors and employees on Tuesday.
“We have expressed concerns about our technical competitiveness, some spoke of the crisis facing Samsung. As company leaders, we bear full responsibility for this,” said Jun, who took over management of the division in May as a part of a restructuring.
Tuesday's worse-than-expected forecast underscores investors' concerns about deteriorating memory market conditions and the potential for a slowdown in AI investments by major technology corporations, although some concerns were tempered by Micron Technology's recent positive forecast for the present quarter.
“Concerns are increasing as demand for legacy memory weakens and smartphone demand is weaker than expected, while entry into the HBM (advanced high-bandwidth memory) market is delayed in comparison with rivals,” Kim Hyun said -tae, analyst at Shinhan Securities.
Concerns in regards to the industry outlook have increased after Morgan Stanley predicted a looming memory downturn, citing falling demand for conventional DRAM memory and a possible oversupply of HBM.
“Storage conditions are beginning to deteriorate,” analysts Shawn Kim and Duan Liu said in a recent report. “From here on out, revenue growth and margins will turn out to be tougher as we emerge from the late stages of the cycle.”
Macquarie analysts also warned of a possible oversupply of dram amid slowing demand for mobile phones and PCs and predicted Samsung could lose its market leadership.
Samsung shares fell to their lowest level in 18 months last week as the corporate struggled to meet up with SK Hynix and Micron in supplying essentially the most advanced HBM chips, a vital component of AI systems.
SK Hynix, the foremost supplier of HBM chips to Nvidia, said last month that the corporate had begun mass production of 12-layer HBM3E chips, its most advanced version, closing its technology gap with Samsung within the fast-growing, high-margin segment have enlarged. According to reports, Samsung's HBM3E chips have yet to pass industry leader Nvidia's qualification tests.
“Nvidia's delayed entry with HBM3E costs a serious market opportunity,” Daniel Kim and Jayden Son, analysts at Macquarie, said in a recent report. “Increasing production yield is one other challenge, even after product qualification.”
Samsung can also be struggling to shut the gap in chip contract manufacturing with Taiwan Semiconductor Manufacturing, where it is predicted to suffer billions of dollars in losses this yr. Macquarie analysts warned of the likelihood that Samsung's $17 billion foundry within the town of Taylor, Texas, could possibly be a “major stranded asset” as a result of an absence of major customers.
Samsung has announced that the Taylor factory will begin producing cutting-edge chips at 4nm and below in 2026 to fulfill growing customer demand for advanced nodes amid the AI ​​boom.
Another cause for concern is the stiffer competition within the high-end smartphone market. Huawei launched a $2,800 tri-fold phone last month to tackle Samsung, while Apple unveiled the brand new iPhone 16 last month and promised a gradual rollout of recent generative AI features.
The weak forecasts come as Samsung cuts a few of its 147,000 employees abroad and struggles with growing employee dissatisfaction at home. The company said its foreign subsidiaries “implement routine workforce adjustments to enhance operational efficiency.”
“Our primary focus will likely be on improving our fundamental technological competitiveness,” Jun wrote, acknowledging the “stressful times” the corporate faces. “We will review our organizational culture and processes and take immediate motion to correct any points that require improvement.”
