AI Chip Challenges Drag Samsung’s Q4 Earnings Below Market Expectations

Samsung Electronics Q4 earnings were below market expectations due to the challenges in system semiconductors. Samsung’s Q4 profit forecast has been sharply reduced. This highlights its struggles in the memory chip market and the strong competition in the high-end chip sector.

According to Reuters, Samsung’s Q4 earnings were impacted by the rising research and development costs. Samsung’s shares hit the lowest in the past four years in November 2024 which could also be one of the reasons for the reduced Q4 profits.

Struggling Chip Division

Samsung’s semiconductor business faced a significant setback in the fourth quarter. Weak demand for memory chips and intense competition in the advanced chip market also affected its performance. Further, the delay and inefficiency in producing Samsung AI chips have added more strain to its earnings.

According to industry experts, Samsung is struggling to maintain its edge after a series of new changes as rivals like Nvidia capitalize on this surging demand for AI-focused chipsets. Samsung vs Nvidia is now at its peak, with Nvidia gaining ground in the market through its latest AI and GPU technologies.

Lee Min-hee, an analyst at BNK Investment & Securities, “We knew that the Q4 performance was bad, so I should say that it was reflected (in the stock price) to some extent. There are concerns about Samsung’s major businesses continuing to lose competitiveness. But chip demand may have bottomed already.”

Revenue Expectations Below Market Forecasts

Samsung estimated an operating profit of 6.5 trillion won in the fourth quarter. This is lower than the LSEG Smart Estimate market forecast of 7.7 trillion won. Though Samsung’s estimated Q4 profit is 131% more than the previous year, it is 29% less than the Q3 profits.

Analysts said one weakness in Samsung’s strategy was that the firm has heavily depended on conventional memory chip sales. Especially, the eternal growth in the smartphone and data center market combined with the company’s efforts to diversify a portfolio of chips designed, such as AI chip solutions, has not paid off yet.

Nvidia CEO Jensen Huang told the reporters of Korea JoongAng Daily in LasVegas on Tuesday, 7th January 2025. “Samsung has to “engineer a new design” to supply HBM chips to his company, adding that “they can do it and they are working very fast.”

Greg Noh, an analyst at Hyundai Motor Securities said, “Samsung’s earnings outlook was worse than expected, with profit possibly eroded by one-off costs as well as disappointing chip and display results. I think it will take time for Samsung to supply HBMs to Nvidia”

Way Ahead for Samsung

Reduced Q4 earnings signals an immediate need for Samsung to rethink its semiconductor strategy. The Korean tech giant has vowed to speed up investments in emerging technologies such as AI and high-performance computing, which is to regain pace.

Although the delays in the Samsung AI chip have been a disappointment, company executives are optimistic about the long-term potential. They look forward to building stronger partnerships and enhancing research and development to address the growing demand for cutting-edge solution

Samsung’s reduced Q4 profits serve as a wake-up call because of rising pressures from competitors such as Nvidia within the industry. Overcoming its current chip division problems will help the company to regain investors’ confidence and its status as the global leader in semiconductor innovation.

Notable here are problems with Samsung’s AI chip manufacturing, as well as intense competition in the market of advanced chips, which emphasize that strategic turns would be in place for 2025 and ahead.