Samsung's Q4 Profits Impacted by High Chip Costs and Competition

Samsung Electronics' preliminary fourth-quarter operating profit fell significantly short of estimates, primarily due to rising research and development costs and investments in advanced chip manufacturing. The South Korean tech giant reported an expected operating profit of 6.5 trillion won ($4.5 billion) for the quarter ending December 31, far below the LSEG SmartEstimate of 7.7 trillion won.

The company's earnings were also affected by a slowdown in demand for conventional memory chips used in PCs and mobile phones. Samsung's efforts to provide high-end chips to Nvidia, a key customer, have been delayed, further impacting profits.

Samsung expects its preliminary revenue to be around 75 trillion won, slightly below analysts' estimates. Despite these challenges, Samsung's profit for the fourth quarter is projected to be 131% higher than the same period last year but 29% lower than the third quarter of 2024.

The company faces stiff competition from SK Hynix, which is Nvidia's main supplier of high-bandwidth memory (HBM) chips. Nvidia CEO Jensen Huang noted that Samsung needs to engineer a new design to meet its requirements for HBM chips.

Analysts have pointed out that Samsung's profit was likely eroded by one-off costs and disappointing chip and display earnings. Despite the struggles, Samsung's shares finished 3.4% higher, with analysts suggesting that the company's challenges had already been factored in.

Looking ahead, Samsung's mobile division may face continued pressure due to increased competition and lower sales of premium foldable phones. The South Korean won's weakness has also had a mixed impact, boosting earnings from overseas but reflecting economic and political turmoil.

Samsung will release detailed fourth-quarter results on January 31.

Source: Reuters, Hyunjoo Jin and Joyce Lee