Samsung’s Q4 profit outlook misses estimates by a wide margin as chip problems drag on Reuters
By Hyunjoo Jin and Joyce Lee
SEOUL (Reuters) – Samsung Electronics reported on Wednesday a fourth-quarter operating profit estimate that missed analyst estimates by a wide margin, as it fell behind rival SK Hynix in supplying high-end chips to Nvidia (NASDAQ: ).
Samsung’s (KS:) earnings were driven by higher research and development costs and increased capacity to produce advanced chips, as well as lower demand for standard 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 the 7.7 trillion won LSEG SmartEstimate.
The estimated result was 131% higher than the same period last year, but down 29% from the third quarter.
Its third-quarter performance, while better than the fourth quarter, was disappointing enough for the company to issue a rare apology to investors in October.
Samsung said at the time it was making progress on supplying HBM chips to Nvidia, but has not provided an update since and the delay continues to weigh on earnings, according to analysts.
Nvidia CEO Jensen Huang told reporters in Las Vegas on Tuesday that Samsung had to “make a new design” to supply HBM chips to his company, adding that “they can do it and they work very quickly,” Korea’s JoongAng Daily reported.
Greg Noh, an analyst at Hyundai Motor (OTC:) Securities, said Samsung’s earnings were worse than expected, with profits likely to be wiped out by one-time costs and disappointing chip and display results.
“I think it will take some time for Samsung to offer HBMs to Nvidia,” he said.
Samsung shares fell 1% in early trading but later rebounded to rise more than 1%.
“We knew the Q4 performance was bad, so I have to say it was reflected (in share prices) to some extent,” said Lee Min-hee, an analyst at BNK Investment & Securities.
“There are concerns about Samsung’s large businesses continuing to lose competitiveness. But it is possible that chip demand has already declined,” he said, adding that smartphone demand in China may improve gradually.
Shares of Samsung, South Korea’s most valuable stock, have fallen 32% in the past year, underperforming the market by 10%.
Samsung’s cross-town rival SK Hynix, a major supplier of AI-enhanced memory chips to Nvidia, is expected to post record earnings in the fourth quarter, analysts said.
US chipmaker Micron Technology (NASDAQ:) last month forecast revenue and quarterly profit below Wall Street estimates, sending shares lower as weak demand for consumer-focused products affects the business of rival Samsung.
Samsung will release detailed results for the fourth quarter including a breakdown of earnings for each of its businesses on Jan. 31.
THE NEED TO REDUCE
Samsung on Wednesday said earnings were also down at its logic chip design and contracting business, due to slower demand for mobile phones, lower consumption rates in its factories and higher research and development costs.
The company’s business making logic chips designed by customers like Qualcomm (NASDAQ: ) is expected to continue losing money as it struggles to increase production output, eroding earnings, analysts said.
Profits in its equipment business, which includes mobile phones, TVs and home appliances, fell due to the fading effect of sales of new mobile phone models and increased competition, Samsung said.
Slower demand may offset the positive impact of a weaker local currency boosting repatriated earnings from overseas.
South Korea’s gains fell to their weakest in 15 years in December after President Yoon Suk Yeol’s declaration of martial law sparked political unrest and US President-elect Donald Trump advocated higher import prices.
($1 = 1,454.6000 won)
