Samsung's Turbulent Q4: The High-Performance Chip Predicament
Samsung Surpasses Anticipations, Doubles Profits Leaving Analysts Perplexed
In a surprising turn of events, tech titan Samsung saw its operating profits spike in Q4 of 2024, yet it fell woefully short of the analyst's predictions. Announcing a profit of 6.5 billion won (approximately 4.3 billion euros) for the October to December quarter, they revealed a staggering 131% increase year-on-year. However, this figure pales in comparison to the average analyst estimate of 7.7 billion won (around 5.1 billion euros).
Facing the Heat: Competition and Low-Cost Rivals
The Korean giant attributes weaker demand for PCs and smartphones, escalating research and development costs, and increased investments in advanced chip production as the primary culprits for the subpar results. A noteworthy observation is their inability to keeps pace with SK Hynix, their formidable domestic competitor, in delivering high-end chips to Nvidia.
The AI Race: Samsung Lags Behind in High-Performance Chips
Samsung finds itself lagging in the high-performance chips for AI, a market that requires High Bandwidth Memory (HBM) to swiftly store and retrieve massive data volumes. While competitors SK Hynix and Micron have already unleashed the most advanced "12-Layer HBM3E" chips, Samsung is limited to providing the previous generation "8-Layer" variety. This situates Samsung in a precarious position, dependent on the declining business of conventional memory chips, as they face encroachment from low-cost Chinese competitors. TrendForce reports a 13% dip in PC memory chip prices in the last quarter, with another 15% decline expected for 2025's beginning.
Unsatisfied Demand for Memory Chips
During Samsung's Q3 results presentation, they acknowledged the disappointing performance of their chip division and highlighted progress in supplying HBM memory to Nvidia. However, since then, they have remained tight-lipped on this matter. Meanwhile, U.S. rival Micron has reported robust growth in HBM memory and a decline in conventional chip sales. Hynix recently posted a record quarterly profit, propelled by the booming AI market.
Soaring Stock Decline: Samsung's Counterstrategy
Samsung's stock has plummeted approximately a third in value over the past year, prompting the company to announce a 6.6 billion euro share buyback, marking their first such move since 2017.
The Enrichment Picture: Samsung's HBM Challenges and More
- Yield and Reliability Issues: Samsung has grappled with yield and thermal problems in its HBM3E chips, which have impeded Samsung from obtaining essential certifications from clients such as Nvidia. Additionally, stabilizing DRAM used in HBM and its packaging remains a significant hurdle.
- Competition from SK Hynix: SK Hynix has emerged as a powerhouse in the HBM chip market, particularly supplying to Nvidia. SK Hynix has not only outpaced Samsung in current HBM3E supplies but also plans to mass-produce HBM4 chips in the second half of this year, further solidifying its market position.
- Market Dynamics: The anticipated demand for AI accelerators, which heavily rely on HBM, has been sluggish, impacting Samsung's profitability. Structural challenges like trade shocks and tariff policies also detract from the growth of the HBM DRAM market.
- Profitability and Market Positioning: Samsung's profit has plummeted due to weak demand and manufacturing issues, including a major drop in DRAM and NAND flash prices. SK Hynix's success in the HBM segment has skewed the market dynamics, making Samsung less competitive.
- Expansion and Manufacturing Delays: Samsung's ambitious plans to expand, such as the delayed opening of its Texas chip factory, have hit roadblocks. These setbacks impair Samsung's ability to compete in the advanced node manufacturing space.
- In the Q4 of 2024, despite a 131% increase in profits year-on-year, Samsung's operating profits fell short of the analyst's predictions by approximately 1.2 billion euros.
- Samsung's struggle to keep up with SK Hynix in delivering high-end chips to Nvidia, particularly in the high-performance chips for AI, has posed a significant challenge for the company in the advanced chip production market.
- The Korean conglomerate is currently limited to providing the previous generation "8-Layer" High Bandwidth Memory (HBM) variety, while SK Hynix and Micron have already introduced the "12-Layer HBM3E" chips.
- In an effort to counteract a third decline in stock value over the past year, Samsung has announced a 6.6 billion euro share buyback, marking their first such move since 2017.
