• Samsung Electronics reported a 72.8% increase in net profit for Q3, despite a slump in its AI chip business.
• The company's operating profit surged 277.4%, but was 10.8% lower than the average estimate.
• Samsung's chip division saw a profit of 3.86 trillion won, a sharp decline from the previous quarter's 6.45 trillion won.
• Despite challenges, Samsung plans to strengthen its leadership in premium products and AI capabilities in Q4.

Samsung Electronics, the South Korean tech giant, has reported a significant surge in its net profit for the third quarter. However, the company's artificial intelligence chip business has been sluggish, weighing heavily on its flagship semiconductor business. The company's net profit for the July-September period was 10.1 trillion won ($7.3 billion), a 72.8% increase from a year earlier. This was revealed in a regulatory filing, as reported by Yonhap news agency.

The company's operating profit also saw a significant increase, surging 277.4% to 9.18 trillion won from 2.43 trillion won a year ago. Revenue rose 17.3% to 79.09 trillion won, setting a new quarterly record and surpassing the previous high of 77.8 trillion won from the first quarter of 2022. However, the operating profit was 10.8% lower than the average estimate, according to a survey by Yonhap Infomax, the financial data firm of Yonhap News Agency.

The company's profit was negatively impacted by the strong won, which reduced its operating profit by 500 billion won compared to the previous quarter. The chip division of the company saw its operating profit reach 3.86 trillion won for the third quarter, shifting from a deficit of 2.18 trillion won a year earlier.

Challenges and Competition in the Chip Market

However, this marks a sharp decline from a 6.45 trillion won profit in the previous quarter. Analysts had expected a higher performance from the chip division, with market projections of around 4.2 trillion won for the three-month period. The world's largest memory chip maker attributed the sharp on-quarter decline in semiconductor profit to one-off factors.

Performance decreased due to a reduced reversal of inventory valuation loss compared to the previous quarter, one-off expenses such as the provision of incentives, and currency effects due to a weak dollar, the company said in a statement. In the high-performance, high-valued high bandwidth (HBM) market, Samsung Electronics is trailing its chipmaking rival SK hynix Inc.

SK hynix announced that it started mass-producing the industry-leading 12-layer HBM3E chips last month, while Samsung Electronics' HBM3E products are still undergoing qualification testing by Nvidia, a key customer in the AI market.

Improvements and Future Plans

Despite these challenges, Samsung Electronics' memory division saw improvements thanks to growing demand for AI applications and data centre investments. Sales of HBM and other server-oriented chips, such as DDR5 and SSDs, boosted the division's third-quarter profit to 7 trillion won, more than offsetting losses in the foundry and system LSI segments.

Samsung Electronics' device division, which includes mobile, TV, and home appliances, posted 45 trillion won in sales and 3.4 trillion won in operating profit. The mobile segment continued to perform steadily, driven by the launch of new foldable smartphones, tablets and wearable products. High-end TVs, including the Neo QLED and OLED models, also contributed to increased profitability in this division.

The company invested 12.4 trillion won in facilities in the third quarter, with 10.7 trillion won allocated to semiconductor production. The company's full-year facility investment is forecast to stand at 56.7 trillion won, a 3.6 trillion won increase from 2023. For research and development, Samsung Electronics spent 8.9 trillion won in the July-September period.

For the fourth quarter, Samsung Electronics plans to strengthen its leadership in premium products and AI capabilities, particularly in HBM products, by enhancing competitiveness in advanced technologies amid intensifying macroeconomic uncertainties. The DS Division, or chip business, will address demand for differentiated products based on advanced technologies and high value-added products such as HBM and server SSDs, the company said.