AI chip business lags behind competitors, Samsung Electronics' Q4 profit far below expectations.

Samsung Electronics announced that its preliminary operating profit for the fourth quarter is 6.5 trillion South Korean won (approximately 45 billion US dollars), lower than analysts' average expectation of 8.96 trillion won. Revenue was 75 trillion won, slightly below expectations. In the lucrative field of artificial intelligence, this electronics conglomerate's performance is disappointing, falling further behind competitors SK Hynix and Micron Technology, Inc. (MU.US). Samsung has been working to get its latest products certified by NVIDIA Corporation (NVDA.US), which has allowed SK Hynix to gain a larger share in the high-bandwidth memory market that AI accelerators rely on. In order to catch up with the fast-growing AI market, Samsung has incurred higher research and development costs and front-end capacity expansion costs. The company stated that even as demand for its traditional semiconductor products for personal computers and mobile devices has weakened in the market, increasing competition has also hurt its mobile device business, and the utilization rate of foundry business has decreased. Samsung will provide a complete financial report later this month, including net profit and departmental performance. When Samsung Electronics announced its third-quarter performance for 2024 last year, industry analysts generally believed that fourth-quarter operating profit would reach around 10 trillion won, but this forecast has been consistently lowered since then, recently even dropping to around 7 trillion won, mainly due to the impact of the memory market. Counterpoint analyst Tom Kang said in an interview, "Samsung is going through one of its most challenging moments in history. Samsung missed out on the boom of high-bandwidth memory and needs to prove that it is providing AI memory to new customers. They are really trying to catch up." Investors remain cautious about whether Samsung can catch up in the high-end memory market. Samsung's chip division is striving to recover from the peak during the pandemic and faces the risk of falling further behind SK Hynix. SK Hynix announced record profits in October. Keeping up with this pace requires high research and development and capacity expansion costs, putting pressure on profitability. Just last week, Microsoft Corporation (MSFT.US) announced plans to invest 80 billion US dollars to build data centers in this fiscal year alone, leading to a general rise in stock prices for SK Hynix and other beneficiaries of AI. Samsung also faces the risk of weak mobile chip sales and is struggling to deal with the increasing supply of traditional chips. Company executives stated in October that they expect demand for their smartphone chips to remain weak until 2025. In the TV and home appliance sector, intense price competition from Chinese manufacturers is eroding profit margins. Last year, Samsung's chip division head Jun Young-hyun apologized for the disappointing results and admitted delays in obtaining NVIDIA Corporation certification. Jun said Samsung now needs to reassess its organizational culture and processes, echoing earlier comments about the need for fundamental changes at one of Korea's oldest companies. The company has reportedly begun layoffs in Southeast Asia, Australia, and New Zealand as part of a global restructuring plan.