After experiencing a dramatic surge in the second quarter, South Korean tech giant Samsung Electronics now faces new challenges. The company’s progress in AI chip development has been slower than anticipated, forcing Samsung to announce third-quarter revenue and profit figures that fell short of expectations. In an unusual move, Samsung executives issued a lengthy apology statement, acknowledging the potential crisis the company is confronting. Historically, its chip division has been a significant source of profit and a competitive edge for Samsung, yet it has experienced notable fluctuations in recent years.
As of October 8, Samsung disclosed its preliminary performance forecast for the third quarter of 2024. The unaudited figures show expected revenues of 79 trillion won, a 17.2% year-on-year increase, while operating profits are anticipated to be around 9.1 trillion won, reflecting a staggering 274.5% increase year-on-year but a 12.8% decline quarter-on-quarter, and still below the market expectation of 10.3 trillion won. Following this announcement, Samsung shares opened down 1.3%, and according to data, the company's stock has plummeted over 22% this year. Analysts have significantly revised their target prices for Samsung, with investment bank Macquarie downgrading the company’s rating from "outperform" to "neutral," slashing its target price from 125,000 won to 64,000 won.
Market expectations for Samsung’s operating profit and revenue were around 10.3 trillion won and 80.87 trillion won, respectively. Although brokerages have lowered their forecasts, predicting an operating profit of about 10 trillion won, this figure still falls short of expectations. Meanwhile, the forecasted 79 trillion won in revenues would break Samsung’s previous record set in Q1 2022. Following the performance forecast, Jun Young-hyun, head of Samsung's chip business, issued a rare apology, expressing concern over the company’s competitive capability in technology. He stated, “We have raised concerns about our technological competitiveness, prompting discussions about a crisis at Samsung… As industry leaders, we take full responsibility.”
Samsung acknowledged that the increase in competition within the chip market, particularly for traditional products, and inventory adjustments by some mobile clients have contributed to a decline in memory chip profitability, counterbalancing the strong demand for high-bandwidth memory (HBM) and other server chips. Analysts indicate that the decline in smartphone and personal computer sales has led to reduced shipments of memory chips, directly impacting Samsung's sales. Unlike its competitors, Samsung is more reliant on commodity chips used in PCs and smartphones.
Although Samsung has not publicly detailed performance by division, projections suggest that the semiconductor division may reach an operating profit of around 5.3 trillion won for the third quarter. While the global semiconductor market has begun to recover, demand for traditional chips in smartphones and PCs continues to slow. Despite being the world’s largest memory chip manufacturer for the past 30 years, Samsung faces intensifying competition in both traditional and advanced chip sectors.
To navigate the current challenges, including intensified competition from Apple and Huawei in the premium smartphone market and ongoing setbacks in the foundry sector where it lags behind TSMC, Samsung replaced the head of its semiconductor division in May 2024 in an effort to tackle the chip crisis and catch up with competitor SK Hynix in HBM products.
Looking back at the second quarter, Samsung’s revenue reached 10.44 trillion won, a remarkable 1,462.29% increase from the previous year, with sales of 74.07 trillion won—up 23.44% year-on-year. Industry expert Lee Kook-kyung noted that during last year’s low memory prices, Samsung adopted a "profit protection, revenue reduction" strategy through capacity control. As market demand recovers, Samsung has increased the prices of its memory products several times this year, driving substantial revenue growth.
However, Macquarie analyst Daniel Kim warned that if the commodity DRAM market remains weak, Samsung risks losing its title as the leading DRAM supplier. Notably, on October 7, Samsung chairman Lee Jae-Yong stated in an interview that the company has no plans to spin off its foundry chip manufacturing and logic chip design divisions, affirming their commitment to these sectors.
In the face of financial pressure from declining demand in the market, Samsung's foundry and logic chip design divisions alone are incurring billions in losses annually, significantly impacting the overall performance of the world’s largest memory chip manufacturer. To streamline operations amidst stiff competition, Samsung has announced a major restructuring plan that includes substantial layoffs, potentially affecting up to 30% of overseas employees across various departments.
Reports indicate that by the end of 2023, Samsung's global workforce stood at approximately 267,800, with overseas employees accounting for over half. The majority of these roles are within manufacturing and development, with approximately 25,100 employees in sales and marketing, and 27,800 in other areas. Samsung responded to inquiries about its layoffs, describing the adjustments as routine measures aimed at improving efficiency, affirming that they would not impact production personnel. While it remains uncertain whether there will be layoffs in South Korea, many believe such actions are unlikely due to Samsung’s significant influence in the country’s economy.
As Samsung faces fierce competition from Chinese brands priced around $200, its market share in Southeast Asia has dwindled to 18%, a drop of roughly 10 percentage points since the beginning of 2023. According to Canalys, the Southeast Asian smartphone market is rebounding after years of stagnation, with total shipments reaching 23.9 million units in the second quarter of this year, marking growth for the third consecutive quarter. In the Philippines, Transsion leads the market with a 31% share, significantly outpacing Samsung's 15%.
Ranking
