Failed to seize the opportunity of AI…Samsung’s profit increased by 274% but fell short of expectations and apologized for the weak financial report

Samsung Electronics recently reported an impressive 274% increase in estimated operating profit for the third quarter, but this figure nevertheless fell short of analysts’ expectations. The company has expressed rarely seen apologies for its disappointing financial results, highlighting its ongoing struggle to leverage the strong demand in the crucial AI memory sector.

In a statement, Kwon Yong-hyun, head of Samsung’s semiconductor division, emphasized the need for a comprehensive reassessment of the company’s culture and operational processes. “Instead of leaning on short-term fixes, we prioritize enhancing our long-term competitiveness. This is indeed a challenging time for us,” Kwon noted. He addressed the concerns about the company’s technological edge, acknowledging that discussions about a crisis facing Samsung have arisen. “As the leader of this division, I take full responsibility for that,” he added.

As the world’s largest manufacturer of memory chips and smartphones, Samsung revealed an estimated operating profit of around 9.1 trillion won (approximately $6.8 billion) for the last quarter, which fell below the analysts’ forecast of 11.5 trillion won. The company attributed this shortfall to costs related to performance bonuses that impacted profits; its revenue also reached 79 trillion won, missing the market expectations of 81.57 trillion won. Samsung plans to release a comprehensive financial report detailing net profits and performance across various sectors later this month.

Samsung’s announcement also pointed to a downturn in profitability within its memory chip business, citing increased supply of mature process chips from competitors in China and inventory adjustments by some smartphone clients that countered the strong demand for high-bandwidth memory (HBM) and chips used in servers.

Following the news, Samsung’s stock price dipped by 1.8% shortly after South Korea’s market opened, though it later stabilized to a decline of less than 1%, closing at 60,500 won per share.

Throughout this year, Samsung’s stock has plummeted over 20%, adding to the difficulties faced in key markets. In the AI sector, particularly within memory production for Nvidia processors, Samsung finds itself lagging behind competitor SK Hynix. Additionally, the company is making little headway in catching up with TSMC in the foundry sector.

Analysts have been downgrading their target prices for Samsung in recent weeks, reflecting the difficulties within its chip division. For example, Macquarie Bank lowered Samsung’s investment rating from “Outperform” to “Neutral” on September 25, drastically reducing its target price from 125,000 won to just 64,000 won.

In contrast, Micron, the largest memory chip manufacturer in the U.S., recently reported robust demand for AI memory, which is anticipated to help its revenue exceed expectations.

Meanwhile, Samsung is working to narrow the gap with SK Hynix, which leads in HBM production for use with Nvidia AI accelerators. However, Samsung has encountered delays in securing certification for its cutting-edge HBM technology. Earlier this year, the company made a surprising change at the helm of its semiconductor unit, with the newly appointed Kwon warning of the urgent need for a cultural shift to prevent the company from falling into a damaging cycle.

Moreover, Samsung has initiated layoffs in Southeast Asia, Australia, and New Zealand as part of a broader effort to reduce its workforce by thousands globally.