Samsung Q4 profit outlook misses estimates by large margin as chip issues drag

A worker waters a flower bed next to the logo of Samsung Electronics during a media tour at Samsung Electronics’ headquarters in Suwon, South Korea, June 13, 2023. REUTERS/Kim Hong-Ji/File Photo Purchase Licensing Rights

Samsung Electronics (005930.KS), released on Wednesday a fourth-quarter operating profit estimate that missed analyst estimates by a large margin, as it lagged behind rival SK Hynix (000660.KS), in supplying high-end chips to Nvidia (NVDA.O).

Samsung’s earnings were dented by rising research and development costs and the ramp-up of manufacturing capacity for advanced chips, as well as by slowing demand for conventional memory chips used in PCs and mobile phones, the company said in a statement.

It did not provide any update on its progress in supplying high-bandwidth memory (HBM) chips used in artificial intelligence applications to Nvidia.

The world’s largest memory chip, smartphone and TV maker estimated an operating profit of 6.5 trillion won ($4.47 billion) for the three months ended Dec. 31, well below a 7.7 trillion won LSEG SmartEstimate.

The estimated result was 131% higher than the same period a year earlier, but down 29% from the third quarter.

Its third-quarter performance, while better than the fourth quarter, was disappointing enough for the company to make a rare apology to investors in October.

Samsung said at the time it was making progress in supplying HBM chips to Nvidia, but it has not provided any update since and the delays have continued to weigh on its earnings, according to analysts.

Nvidia CEO Jensen Huang told reporters in Las Vegas on Tuesday that Samsung has to “engineer a new design” to supply HBM chips to his company, adding that “they can do it and they are working very fast,” Korea JoongAng Daily reported.

Greg Noh, an analyst at Hyundai Motor Securities, said Samsung’s earnings outlook was worse than expected, with profit possibly eroded by one-off costs as well as disappointing chip and display results.

“I think it will take time for Samsung to supply HBMs to Nvidia,” he said.

Samsung shares fell 1% in early trading but later rebounded to rise more than 1%.

“We knew that the Q4 performance was bad, so I should say that it was reflected (in the stock price) to some extent,” said Lee Min-hee, an analyst at BNK Investment & Securities.

“There are concerns about Samsung’s major businesses continuing to lose competitiveness. But chip demand may have bottomed already,” he said, adding smartphone demand in China may gradually improve.

Shares of Samsung, South Korea’s most valuable stock, slumped 32% last year, lagging the wider market’s (.KS11), 10% decline.

Samsung’s cross-town rival, SK Hynix, a major supplier of advanced AI memory chips to Nvidia, is expected to post record earnings for the fourth quarter, analysts said.

U.S. chipmaker Micron Technology (MU.O) last month forecast quarterly revenue and profit below Wall Street estimates, sending shares lower as weak demand for consumer-centric products impacts the Samsung rival’s business.

Samsung will release detailed fourth-quarter results including a breakdown of earnings for each of its businesses on Jan. 31.

SLOWING DEMAND

Samsung said on Wednesday that earnings also fell in its business of designing and contract manufacturing logic chips, due to slower mobile phone demand, lower utilisation rates at its factories and higher research and development costs.

The company’s business of making logic chips designed by customers like Qualcomm (QCOM.O), is expected to continue to make losses as it struggles to increase production yields, eroding chip earnings, analysts said.

Earnings for its devices business, which includes mobile phones, TVs and household appliances, fell due to the fading effect of sales of new mobile phone models and rising competition, Samsung said.

Slowing demand likely offset the positive impact of the weaker local currency that boosts repatriated earnings from overseas.

The South Korean won dropped to its weakest level in 15 years in December after President Yoon Suk Yeol’s martial law decree triggered political turmoil and U.S. President-elect Donald Trump advocates higher tariffs on imports.

($1 = 1,454.6000 won)

Source: www.reuters.com