AI kaboom: Samsung falls behind rivals, issues rare apology

Samsung Electronics can surely feel a crisis is on the horizon. Why else would a tech giant issue a rare apology for disappointing results in Q3 2024?

“Today, we, the management of Samsung Electronics, would like to first apologize to you. The performance that fell short of market expectations has raised concerns about the fundamental technological competitiveness and the future of the company.”

The apology – a rare occurrence indeed – illustrates the challenges facing Samsung Electronics, a company that appears to be losing its way after disclosing worse-than-projected revenue and profit.

On Tuesday, Samsung reported a modest rise in preliminary operating profit to around 9.1 trillion won ($6.8 billion) for the three months ended September 30th. Revenue also gained less-than-expected to 79 trillion won ($58.6 billion).

Moreover, Samsung said in another filing that its AI chip business with an unidentified major customer was hit by a delay, while Chinese chip rivals increased supplies of conventional chips, contributing to the decline in its semiconductor earnings.

“The earnings are a shock compared to what many analysts expected initially,” said Lee Min-hee, an analyst at BNK Investment & Securities. “I don’t see its earnings improving in the current quarter.”

Samsung is already trailing its rivals in supplying high-end memory chips to Nvidia in the booming AI market. For instance, it is trailing SK Hynix, another South Korean firm, in increasing sales of high-bandwidth memory chips used in AI servers to Nvidia.

And its US rival, Micron, last month forecast first-quarter earnings ahead of Wall Street estimates and reported its highest quarterly revenue in over a decade on the back of booming demand for its memory chips used in AI.

Samsung's late response to the AI chip market increases its reliance on traditional, lower-margin chips, making it more vulnerable to competition from China and elsewhere and slowing demand for smartphones and PCs, analysts say.

Samsung's share price, already down more than 20% so far this year, immediately fell 1.3% after Tuesday’s news. Now, Young-Hyun Jun, Samsung’s co-CEO and head of device solutions, promises to overhaul the organization.

"These are testing times," he said, pledging to turn the challenge into an opportunity and focus on enhancing long-term technological competitiveness.

Still, Samsung is cutting as much as 30% of overseas staff at some divisions, Reuters reported in September, and this will certainly add to the tension, already high after summer protests by employees in South Korea who are demanding better pay and benefits.