Samsung issues public apology as earnings disappoint

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Samsung Electronics has issued a public apology and acknowledged the company is considered to be in “crisis”, following the release of worse than expected profit guidance on Tuesday.

The South Korean chip giant reported a preliminary operating profit of Won9.1tn ($6.8bn) for the third quarter, undershooting market expectations of a Won10.3tn profit, according to LSEG SmartEstimates.

While its expected operating profit has almost tripled compared with the same period a year ago, following a surge in memory chip prices, it is down almost 13 per cent on the second quarter of this year.

The company’s share price has fallen by almost 30 per cent over the past six months amid growing concern over its competitiveness in cutting-edge chips used in artificial intelligence systems.

“The leadership team at Samsung Electronics wishes to apologise for not meeting your expectations with our performance,” Young Hyun Jun, the head of Samsung’s chip division, wrote in a letter to customers, investors and employees on Tuesday.

“We have caused concerns about our technical competitiveness, with some talking about the crisis facing Samsung. As leaders of the business, we take full responsibility for this,” said Jun, who took over the division in a management shake-up in May.

The worse than expected guidance on Tuesday underlines investor concern about deteriorating memory market conditions and the possibility of slowing AI investment by big tech groups, though some concerns were relieved by Micron Technology’s recent upbeat forecast for the current quarter.

“Concerns are growing as legacy memory demand is slowing and smartphone demand is weaker than expected while its entry into the [advanced high-bandwidth memory] HBM market gets delayed compared with rivals,” said Kim Hyun-tae, an analyst at Shinhan Securities.

Concern about the industry outlook has intensified after Morgan Stanley forecast a looming memory downturn, citing falling demand for conventional Dram memory and possible HBM oversupply.

“Memory conditions are beginning to deteriorate,” said analysts Shawn Kim and Duan Liu in a recent report. “It will get tougher for revenue growth and margins from here as we move past late-cycle conditions.”

Macquarie analysts also warned of a potential supply glut in Dram amid slowing mobile and PC demand, predicting that Samsung might lose its market leadership.

Samsung shares fell last week to their lowest level in the past 18 months as the company has struggled to catch up with SK Hynix and Micron in supplying the most advanced HBM chips, a crucial component of AI systems.

SK Hynix, the main supplier of HBM chips to Nvidia, said last month that it began mass production of 12-layer HBM3E chips, its most advanced version, widening its technology gap with Samsung in the fast-growing, high-margin segment. Samsung’s HBM3E chips are reportedly yet to pass industry leader Nvidia’s qualification tests.

“A delayed foray into Nvidia with HBM3E is costing a big market opportunity,” said Daniel Kim and Jayden Son, analysts at Macquarie, in a recent report. “Ramping up production yield is another challenge, even after product qualification.”

Samsung is also struggling to narrow the gap with Taiwan Semiconductor Manufacturing in contract chipmaking, where it is expected to suffer billions of dollars in losses this year. The Macquarie analysts warned of a possibility that Samsung’s $17bn foundry in the city of Taylor, Texas, could be a “big stranded asset” due to a lack of major clients.

Samsung has said the Taylor fab would begin production in 2026 for leading-edge chips at 4nm and below to meet growing customer demand for advanced nodes amid the AI boom.

Stiffer competition in the high-end smartphone market is another concern. Huawei launched a $2,800 tri-fold phone last month to take on Samsung, while Apple unveiled the new iPhone 16 last month, promising a steady rollout of new generative AI features.

The weak guidance comes as Samsung is cutting some of its 147,000 overseas staff and wrestling with growing worker discontent at home. The company said its overseas subsidiaries were “conducting routine workforce adjustments to improve operational efficiency”.

“Our primary focus will be on enhancing our fundamental technological competitiveness,” Jun wrote as he acknowledged the “testing times” facing the company. “We will review our organisational culture and processes, and take immediate action to rectify any aspects that require improvement.”