Samsung earnings sink amid slow transition to AI chips

Operating profit from memory remains at W2.9 tril.

By Nam Hyun-woo

Samsung Electronics ended up posting an operating profit of 6.5 trillion won ($4.48 billion) for the fourth quarter of 2024, as the company suffered a critical slowdown across its main businesses of chips and appliances.

Specifically, the chip business logged a disappointing 2.9 trillion won in operating profit due to the company’s slow transition to high-bandwidth memory (HBM) chips specialized for artificial intelligence (AI) processors. The tech giant acknowledged that it is facing challenges but added that it expects to achieve a recovery “within a short period.”

Samsung announced the 6.5 trillion won operating profit in an earnings call on Friday, along with sales of 75.8 trillion won for the same period. The numbers represent 129.9 percent and 11.8 percent increases year-on-year, respectively, but fell short of brokerages’ expectations that the operating profit would reach 7 trillion won.

On a consolidated yearly basis, the company’s 2024 sales stood at 300.9 trillion won, and its operating profit reached 32.7 trillion won, representing 16.2 percent and 398.3 percent year-on-year increases.

The numbers improved from a year earlier, when the global chip industry was in a downcycle but backpedaled compared to the previous quarter, with the fourth-quarter sales and operating profit declining 4.17 percent and 29.2 percent, respectively.

For the fourth quarter, the company’s chip-making Device Solutions division posted 30.1 trillion won in sales and 2.9 trillion won in operating profit. Sales improved from three months earlier, but the operating profit slowed 24.9 percent from 3.86 trillion won during the same period.

The numbers are disappointing when compared to those of Samsung’s chip rival SK hynix. Earlier this month, SK hynix posted a slew of record highs in its fourth-quarter earnings, including an operating profit of 8.08 trillion won, buoyed by its solid presence in the global HBM market.

This means that SK hynix, which makes only memory chips, was more profitable than all Samsung Electronics’ businesses combined, and Korea’s biggest company is now trailing behind SK hynix due to setbacks in supplying HBM chips for major clients, namely Nvidia.

Samsung said in a statement that its revenue from memory chips was at a new fourth-quarter high due to increased sales of HBM and high-capacity DDR5, but the operating profit declined due to the increased R&D expenses and initial ramp-up costs for expanding advanced production capacity.

During the earnings call, Samsung said its HBM revenue for the fourth quarter grew 1.9 times compared to the previous quarter, but it is “slightly lower” than its initial expectations because of geopolitical issues and “changes in demand stemming from improved HBM3e products that are planned (for shipping) in the first quarter of this year.”

Hours before the earnings call, Bloomberg reported that Samsung passed Nvidia’s qualification test for less-advanced eight-layer HBM3e chips in December. Samsung did not mention Nvidia regarding the eight-layer chip but noted that it will be able to supply improved eight-layer HBM3e chips in the first quarter of this year.

The company said, however, that it expects a slowdown for the memory business in the first quarter due to the U.S. government’s recently announced export controls on advanced semiconductors and major customers shifting their orders to the improved HBM products.

“The demand for mobile and PC memory remains weak, while uncertainty in HBM demand is increasing due to (U.S.) export controls on AI chips,” the company said. “Additionally, demand is deferring on HBM, leading to an expected decline in sales volume. As a result, the first quarter is likely to see both sluggish demand for general DRAM and weaker-than-expected HBM sales.”

Nonmemory businesses, namely chip design and foundry, both saw their profitability decline due to increased R&D costs and weakening demand for mobile chips. Samsung did not break down its nonmemory earnings, but analysts assume losses exceeded 2 trillion won in the nonmemory sector.

The slowdown in its foundry business is expected to prolong, as Samsung dropped hints at outsourcing base die for its next-generation HBM4, instead of using its in-house foundry. The company also cast a gloomy outlook for the chip design segment, as its Exynos processors are not supplied to the latest Galaxy S25 smartphone series.

“HBM4 is being developed as planned, with mass production planned for the second half of next year,” the company said. “We are preparing for the commercialization of custom HBM with multiple clients… Since meeting customer requirements is crucial, we plan to select foundry partners for base die production flexibly based on each client’s needs.”

The company’s appliance business, including smartphones, home appliances and others, posted 40.5 trillion won in sales and 2.3 trillion won in operating profit for the fourth quarter, both backpedaling from that of three months earlier.

The company saw declines in both the sales and operating profit of its smartphones from the previous quarter as the impact of the Galaxy S24 series waned, leading to lower phone sales. Also, intensified competition resulted in weaker profitability for its TVs and home appliances, the company explained.

“We are well aware of headwinds that we are facing, and we are doing our best to overcome,” Samsung Electronics Chief Financial Officer Park Soon-chul said. “We believe that with our diverse business portfolio and the competitiveness of our core businesses, we can gradually recover from the current challenges… We see the current issues as an opportunity for a new leap forward and are confident that we can resolve them within a short period."