Samsung Elec’s Lee ascends to chair as chip sales fall behind TSMC in Q3

[Photo by Lee Seung-hwan]

(Updated with additional information and comments from earnings conference call)

Jay Y. Lee has ascended to the chairmanship of Samsung Electronics after managing affairs of Samsung Group since his father fell ill in 2014 and died two years ago at a challenging time for the chip-to-appliance giant that yielded top chipmaking position to Taiwan’s pure-play foundry TSMC in the third quarter when its chip income was halved from the previous quarter.

Samsung Electronics board on Thursday voted to promote Lee from vice chair position, the title he had kept for 10 years for “desperate need of fast and radical decision-making.”

Shares were as calm as Lee who skipped any inauguration event and showed up at a trial over ongoing merger-related corruption cases. The stock ended 0.17 percent up at 59,500 won.

“I will try to make the company more trusted and loved by the people,” Lee told reporters after the trial.

On Thursday, the company estimated its capital expenditure for this year at 54 trillion won ($38 billion), 12 percent higher than 48.2 trillion won spent last year. The bulk of its capex - 47.7 trillion won, will go to chip expansion and upgrade. The rest will be spent on enhancing small-sized OLED capacity. The final figure could differ on business conditions, said the company.

Regardless of the immediate headwinds and down cycle, the chipmaker has eyes on the longer term when demand may recover from inflation and recession fears for continuous market movement toward digitalization and automation.

Samsung Electronics is making no “artificial” reduction in chip output in light of inventory buildup.

Chip inventory reached 57.3 trillion won in the third quarter, rising 5.2 trillion won over three months.

Demand is expected to pick up next year with data center ramp-ups and greater adoption of DDR5 for new CPUs, said Han Jin-man, executive vice president and head of the memory global sales and marketing at Samsung Electronics, at the earnings conference call.

For the time being, Samsung Electronics has been shaken like its Korean memory chip rival SK hynix due to softening in mass-market memory chip prices and demand.

The world's major manufacturer of computer chips, smartphones, displays, and home appliances reported its third-quarter operating income came to 10.85 trillion won, off 23 percent on quarter and 31.4 percent on year. The results are back to the levels of the last chip down cycle in the first quarter of 2021.

Operating margin fell 4.1 percentage points to 14.1 percent due to worsened profitability from sales of chips.

Cumulative profit up to September totaled 39.07 trillion won, up 3.45 percent on year.

Sales remained robust at 76.8 trillion won, down 0.55 percent on quarter and up 3.79 percent on year. Revenue up to September amounted to 231.8 trillion won, up 14.15 percent from the best-ever sales booked in 2022 to suggest that much of a loss in profitability from softened chip prices and stronger cost of raw materials from weak Korean won.

Net profit fell 15.4 percent on quarter and 23.6 percent on year to 9.39 trillion won. Cumulative net income added 9.4 percent from a year ago to 31.8 trillion won.

Income from chip operation stopped at 5.12 trillion won in the third quarter, halved compared to 9.98 trillion won posted in the second quarter as SK hynix did - its memory chip rival reported a more than 60 percent plunge in profit over the same period. Chip sales totaled 23 trillion won, falling short of TSMC which reported revenue of $19.4 billion for the third quarter to lose the top chipmaking title.

According to market tracker TrendForce, spot prices of DRAM fell 10 to 15 percent on quarter in the third quarter, and NAND flash memory about 13 to 18 percent.

Earnings from other business operations were mixed.

The mobile device division delivered 3.2 trillion won in operating income, down 120 billion won compared to a year ago. Revenue however rose 13 percent on year to 32.2 trillion won on robust demand for foldable smartphones.

The visual display and home appliance business earned 260 billion won in operating income on sales of 14.75 trillion won. Income is about one-third of what was reported a year earlier.

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