Samsung Electronics’ preliminary fourth-quarter (Q4) operating profit fell short of expectations by a large margin, with the tech giant hit hard by extra costs.
The company via a statement disclosed that its earnings were negatively impacted by rising research and development costs and the ramp-up of manufacturing capacity for advanced semiconductors. It also added that low demand for conventional memory chips used in PCs and mobile phones also weighed on earnings.
Samsung announced an operating profit estimate of 6.5 trillion won (£4.47 billion) for the fourth quarter of 2024, however falling short of analysts’ expectations of 7.7 trillion won.
The shortfall reflects ongoing challenges in the memory chip and consumer electronics sectors. The tech giant reported consolidated sales of approximately 75 trillion won. Although the profit marked a 131% increase compared to the same period last year, it however represented a 29% decline from the third quarter.
Its Rival SK Hynix is Nvidia’s main supplier of high-bandwidth memory (HBM) chips used in artificial intelligence graphics processing units (GPUs) whereas Samsung has struggled to meet Nvidia’s requirements. Samsung disclosed during its third-quarter earnings that it was making progress in supplying HBM chips to Nvidia but has not made any public updates since then.
The tech giant attributed the dip in earnings to high research and development expenses and increased investments in advanced chip manufacturing. Demand for conventional memory chips used in mobile phones and PCs also declined, while the company’s logic chip business struggled with low factory utilization rates and reduced smartphone demand.
In its devices segment, comprising mobile phones, TVs, and home appliances, profits shrank due to intense market competition and lackluster demand for recently launched smartphone models. Analysts noted that these obstacles overshadowed the favorable impact of a weaker South Korean won, which typically boosts overseas earnings.
Samsung’s shares initially dipped 1% in early trading but recovered by the end of the day, closing with a slight gain. However, the company’s stock underperformed last year, declining 32%, compared to a 10% drop in the broader market. While some analysts caution that Samsung’s key business segments risk losing their edge, others remain optimistic that chip demand may have bottomed out.
Samsung Banks on AI to Outpace Global Growth in Smartphones, Home Appliances
Looking forward, Samsung plans to expand its on-device Al capabilities, aiming to outpace global growth in the consumer electronics segment. Jong-Hee Han, Samsung’s CEO and head of its Device eXperience division, in an interview with CNBC, disclosed that he wants to build an AI-driven company.
In line with this, Samsung is integrating Al chips into appliances such as refrigerators, washing machines, and robot vacuum cleaners, while bolstering Al features in its flagship Galaxy S24 series. These include innovations like real-time foreign language translation during phone calls.
It is worth noting that the tech giant competitors which include Huawei and Xiaomi, are gaining traction with high-end smartphones at significantly lower prices. Despite the pressure, Samsung emphasized that competition benefits both the company and its consumers.
As Samsung navigates these challenges, its strategic investments in Al and connected devices aim to position the company for future growth, even as market dynamics evolve.
