Samsung Electronics (005930.KS) is anticipated to report a more than four-fold increase in quarterly profit on Tuesday, driven by improving demand for chips. However, analysts warn that the pace of recovery is slowing, particularly as the company struggles to capitalize on the artificial intelligence boom.
According to an average estimate from 29 analysts with LSEG SmartEstimate, Samsung’s operating profit for the quarter ending September 30 is expected to be 10.33 trillion won ($7.67 billion). This marks a significant rise from 2.43 trillion won a year earlier but shows little change compared to the 10.44 trillion won reported in the previous quarter.
The global semiconductor market is rebounding from last year’s downturn, largely due to demand for chips used in AI servers. However, the recovery in demand for conventional chips used in smartphones and PCs is slowing, analysts note.
Samsung, the world’s leading manufacturer of memory chips, smartphones, and TVs, is striving to catch up with smaller competitors like SK Hynix (000660.KS) and Micron (MU.O) in the race to supply high-end AI chips to Nvidia (NVDA.O). At the same time, it faces increasing competition from Chinese rivals in the commodity chip market.
The company’s primary chip division is expected to post an operating profit of 5.5 trillion won, a significant increase from a year earlier, but down 15% from the previous quarter. This decline is attributed in part to Samsung setting aside provisions for bonuses, according to estimates from 10 analysts compiled by Reuters.
Analysts say Samsung’s delayed response to the high-margin AI chip market, combined with its greater exposure to China and traditional mobile chips than its competitors, has made it more susceptible to geopolitical risks and tepid demand.
“Samsung is more likely to lose the title of number 1 DRAM vendor in case of a softer commodity DRAM market,” noted Daniel Kim, an analyst at Macquarie Equity Research, in a recent report. He added, “The conventional DRAM supply glut will likely hurt Samsung far more than SK Hynix.”
The pessimistic outlook follows Micron’s forecast last month, which projected first-quarter results that surpassed Wall Street estimates, along with the company reporting its highest quarterly revenue in over a decade due to soaring demand for its memory chips used in the AI sector.
Analysts also predict that Samsung’s non-memory chip operations—comprising chip designing and contract manufacturing—continued to incur losses in the third quarter. The company is struggling to compete with the dominant leader TSMC (2330.TW), which counts Apple (AAPL.O) and Nvidia among its clients.
In response to ongoing challenges, Samsung is reportedly cutting up to 30% of its overseas staff in certain divisions, according to a Reuters report from September. Additionally, sales of its premium foldable phones are expected to fall short of expectations, further impacting the company’s profits amid growing competition from Chinese rivals like Huawei. Analysts estimate that Samsung’s mobile phone and network businesses posted an operating profit of 2.6 trillion won in the third quarter, which is a decrease of one-fifth compared to the previous year, based on estimates from 10 analysts compiled by Reuters.
Samsung Electronics’ shares have dropped 23% so far this year, underperforming compared to SK Hynix, which has seen a 23% rise in its stock.
The South Korean firm is set to announce its preliminary third-quarter earnings on Tuesday, with full figures expected to be reported later this month.
