Samsung Sees Limited Earnings Growth Amid Weak Memory Chip Market
Samsung Electronics announced on Friday that it anticipates limited growth in earnings for the first quarter of 2025, primarily due to challenging conditions in the memory chip market. The company is simultaneously working to enhance its supply capabilities for high-end chips dedicated to Nvidia.
First Quarter Outlook
In a statement released post-results, Samsung indicated: “In the first quarter of 2025, overall earnings improvement may be limited due to weakness in the semiconductors business.” This follows the announcement that the company reported an operating profit of 6.5 trillion won (approximately $4.48 billion) in the fourth quarter of 2024, which marks a significant 29% decline from the previous quarter.
Market Recovery Predictions
The world’s leading memory chip manufacturer shared its expectation that overall memory market demand could begin to recover in the second quarter of 2025. However, the company also noted that specific investment strategies for 2025 have yet to be finalized.
Investment Insights
Despite the uncertain outlook, Samsung stated that memory investment is projected to align closely with last year’s figures. The South Korean tech behemoth disclosed total capital spending of 53.6 trillion won during 2024, with 46.3 trillion won being allocated for its chip business, which encompasses both logic and memory chips.
AI Chips: A Bright Spot
Amidst the struggles in the memory chip sector, advanced chips utilized for artificial intelligence (AI) have emerged as a sector of growth. However, competition is strong, particularly with SK Hynix stepping up as Nvidia’s primary supplier of high-bandwidth memory (HBM) chips used in AI graphics processing units.
Challenges with Nvidia Supply
Samsung has faced challenges in meeting Nvidia’s requirements, leading to uncertainties regarding its high-end offerings. Reports indicate that Samsung has recently secured approval to supply a version of its HBM chips known as 8-layer HBM3E to Nvidia.
Competitive Landscape
Both SK Hynix and Taiwan’s TSMC, the world’s largest contract chipmaker, have reported record profits this month, primarily driven by the surging demand from the AI sector. Notably, SK Hynix has surpassed Samsung’s numbers for the first time, underscoring the competitive pressure in the market.
Fourth Quarter Financial Snapshot
Samsung’s fourth-quarter operating profit showcases a 130% increase from a low base a year prior, when the memory chip sector was reeling from its worst downturn in decades. These results align closely with preliminary figures reported earlier.
Mobile Business Performance
Despite the strong overall performance in the memory sector, Samsung’s mobile phone division faced challenges. The operating profit for this sector fell by 22% to 2.1 trillion won compared to the previous year, painting a mixed picture of the company’s portfolio.
Chip Division Insights
The chip division saw a swing back to an operating profit of 2.9 trillion won, reflecting improvement year-over-year. However, this was a decline of approximately 26% from the preceding quarter, highlighting ongoing volatility in the semiconductor market.
Market Reaction
In early trading, shares of Samsung dropped by 2.2%, contrasting with a 1% decline in the broader market. Investor sentiment appears cautious as the company navigates these challenging conditions.
Conclusion
As Samsung Electronics moves forward, the company will need to address the competitive pressures in the AI chip sector while simultaneously managing the recovery prospects in its memory chip business. The upcoming quarters will shed light on whether Samsung can stabilize its earnings in a rapidly evolving tech landscape.
Questions and Answers
1. What is Samsung’s earnings forecast for the first quarter of 2025?
Samsung expects limited earnings growth for the first quarter of 2025 due to weak semiconductor market conditions.
2. How did Samsung perform in the fourth quarter of 2024?
Samsung reported an operating profit of 6.5 trillion won, a 29% decrease from the third quarter.
3. What is the expected market demand for memory chips in 2025?
Samsung anticipates that overall memory market demand may recover beginning in the second quarter of 2025.
4. Who is the main supplier of HBM chips to Nvidia?
SK Hynix is Nvidia’s main supplier of high-bandwidth memory chips used in AI graphics processing units.
5. Why did Samsung’s mobile phone division see a decrease in operating profit?
The mobile phone division’s operating profit fell by 22% due to competitive pressures and market dynamics.
