Samsung apologizes for disappointing Q3 results

Samsung Electronics is expected to log 9.1 trillion won ($6.8 billion) in profit for the third quarter, failing to meet market expectations as the Korean chip giant could not find a breakthrough in the highly competitive AI chip market.

Samsung Electronics' office in Seocho District, southern Seoul [NEWS1]

Samsung Electronics expects to log 9.1 trillion won ($6.8 billion) in profit for the third quarter, failing to meet market expectations as the Korean chip giant could not find a breakthrough in the highly competitive AI chip market.

Jun Young-hyun, Samsung's vice chairman and head of its device solutions (DS) division, issued an apology after the preliminary earnings announcement, in a rare move, admitting that the company is coping with a potential crisis.

“Today, Samsung Electronics' management would like to make an apology for not meeting market expectations and causing concerns regarding fundamental technology competitiveness and the future of the company,” said Jun in an emailed apology issued right after the preliminary earnings announcement.

“I will make sure to turn the current severe situation into an opportunity to leap again. To overcome this crisis, management will stand at the forefront.”

The Korean tech behemoth said it expects its third-quarter operating profit to reach 9.1 trillion won, a 274.5 percent on-year jump. That hovers below the market expectation of 10.8 trillion won compiled by FnGuide.

Its revenue was 79 trillion won during the July-September period, a 17.21 percent jump compared to the year before. That also fell below market expectations of 80.9 trillion won.

Samsung Electronics' worse-than-expected earnings largely stem from slow recovery in the chip sector.

Samsung Electronics explained a “delay in business with major clients in regards to HBM3E [high bandwidth memory 3E ]” as one of the reasons behind the disappointing results.

HBM3E is the fifth generation of HBM considered essential for AI. Samsung Electronics has yet to receive a green light from Nvidia and has been lagging behind its crosstown rival SK hynix by more than six months. SK hynix already started shipping the eight-layered HBM3E to the U.S. chip giant in March.

“Despite solid demand for servers and HBM, inventory adjustment by some of our clients in the mobile sector and an increase in the supply of legacy chips by Chinese players, on top of one-off spending and the influence of exchange rates, lead to a drop in earnings,” Samsung Electronics said in a release Tuesday, another rare move compared to just disclosing the numbers for the preliminary results in the past.

The preliminary earnings do not provide a breakdown per sector, but the DS division, in charge of the chip business, is forecast to log an operating profit below 5 trillion won, dipping from the previous quarter's 6.5 trillion won.

SK Securities forecast the chip business to have recorded 4.4 trillion won of operating profit in the third quarter with the memory chip business raking in 5.8 trillion won while its contract manufacturing and logic processor design businesses losing 1.4 trillion won.

Samsung Electronics' HBM3E unveiled in 2023 [SAMSUNG ELECTRONICS]

“Short-term recovery in logic processors seems unlikely due to slow demand for IT sets [smartphones, TVs and PCs],” said Han Dong-hee, analyst at SK Securities. “Strong AI demand and the supply shortage of HBM chips, however, will eventually lead Samsung's HBM3E into full swing.”

Samsung Electronics shares slipped by 24 percent coming into this year.

They closed at 60,300 won Tuesday, posting a 1.15 percent drop from the previous trading day.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]