Samsung's Earnings Outlook: Profit Growth Slows Amid AI Chip Demand and Price Pressure
The world's top memory chip maker, Samsung Electronics, is expected to forecast a slowdown in its profit growth for the fourth quarter of 2022. This decline is attributed to the company's struggles to meet the strong demand for artificial intelligence (AI) chips from Nvidia, one of its key customers.
According to various analysts, Samsung's operating profit for the quarter ended December is likely to be around 8.2 trillion won ($5.6 billion), which represents a significant increase from 2.8 trillion won in the same period last year but lower than the 9.18 trillion won recorded in the preceding quarter. However, this growth is expected to be modest due to several factors, including Nvidia's increasing demand for AI chips and Samsung's delays in providing these high-end chips.
In October, Samsung made a rare apology for its disappointing third-quarter performance, citing progress in supplying AI chips to Nvidia as part of its efforts to recover. Since then, the company has not provided any updates on this front, leading analysts to express concerns about the ongoing delays and their impact on earnings. The replacement of top executives in the chip division in November is also seen as a move to address the issues plaguing Samsung's memory chip business.
The South Korean tech giant faces stiff competition from Chinese rivals, which has led to a decline in traditional chip prices used in mobile phones and PCs. This trend is expected to continue, with DDR4 DRAM chip prices forecasted to fall by up to 15% in the current quarter, according to TrendForce estimates. Furthermore, Samsung's business of making logic chips designed by customers like Qualcomm is also expected to incur losses, eroding its chip earnings.
Samsung's Rival SK Hynix Posts Record Earnings
In contrast to Samsung's struggles, its cross-town rival, SK Hynix, a major supplier of advanced AI memory chips to Nvidia, is expected to post record earnings for the fourth quarter. Analysts attribute this success to SK Hynix's ability to meet the increasing demand for AI chips from Nvidia and other customers.
Lacklustre Demand and Price Pressure
The global chip market continues to face challenges due to lacklustre demand for traditional chips used in mobile phones and PCs, as well as rising output from Chinese rivals. This has led to pressure on chip prices, with DDR4 DRAM chip prices falling by up to 13% in the fourth quarter and expected to decline another 15% in the current quarter.
The weakening South Korean won has also had an impact on Samsung's business, boosting repatriated earnings from overseas but unable to offset the negative effects of declining chip prices. The local currency dropped to its weakest level in 15 years in December following President Yoon Suk Yeol's martial law decree and U.S. President-elect Donald Trump's advocacy for higher tariffs on imports.
Samsung's Business Outlook
Samsung will announce estimates for fourth-quarter revenue and operating profit on Wednesday, with a plan to release detailed results including a breakdown of earnings for each of its businesses in late January. The company's business of making logic chips designed by customers like Qualcomm is expected to continue to incur losses, eroding its chip earnings.
The slowdown in Samsung's profit growth reflects the challenges facing the global chip industry, which continues to grapple with issues related to demand, supply, and pricing. As the world's top memory chip maker, Samsung's performance will have a significant impact on the sector as a whole.
Conclusion
Samsung Electronics' fourth-quarter earnings outlook is expected to reflect a slowdown in profit growth due to several factors, including Nvidia's strong demand for AI chips and Samsung's delays in providing these high-end chips. The company faces stiff competition from Chinese rivals, which has led to a decline in traditional chip prices used in mobile phones and PCs. Despite this, Samsung's rival SK Hynix is expected to post record earnings for the fourth quarter due to its ability to meet the increasing demand for AI chips.
As the global chip industry continues to face challenges related to demand, supply, and pricing, Samsung's performance will be closely watched by investors and analysts alike. The company's ability to adapt to these changes and maintain its position as the world's top memory chip maker remains a key focus area for the sector.