Samsung Remains Enthusiastic About AI-Driven Mobile Phones Despite Sales Loss to Apple's Devices
In a significant blow to the tech giant, Samsung's shares dipped by 1.6% in Seoul on Wednesday, reflecting the South Korean company's fourth consecutive quarter of declining profits and a loss of market share in 2023.
The main factors contributing to this prolonged slump include US export controls and sanctions, lagging product development, trade tensions, weaker foundry business, competitive pressure, and the historic supply shortage during the COVID-19 pandemic.
Since early 2023, the US government banned exports of advanced high-bandwidth memory (HBM) chips and other advanced AI chips to China, a key market for Samsung. This led to a sharp drop in sales of Samsung’s older HBM inventory and prevented sales of new advanced chips to China, forcing Samsung to write down inventory value and limiting market access.
Samsung's rollout and certification of next-generation HBM3E chips for major clients like Nvidia were delayed, unlike competitors such as SK Hynix and Micron Technology, who gained market share by delivering advanced AI chips on schedule. This delay put Samsung at a disadvantage in the AI chip segment, with its revenue from HBM chips remaining flat.
Beyond the chip sector, Samsung's other segments like TV and home appliances also suffered from weak consumer demand partly due to the aftereffects of US tariffs imposed during the previous administration. The company faced broader trade-related challenges affecting overall profitability.
The semiconductor foundry segment recorded profit declines due to operating below capacity because of restrictions and weak demand, while inventory adjustments further dragged down earnings. Smaller competitors like SK Hynix and Micron capitalized on the AI chip demand surge, advancing faster in HBM production, thereby eroding Samsung’s market share in this critical area.
Despite these headwinds, analysts expect some recovery in the second half of 2023, driven by potential inventory clearance and anticipated gradual demand improvement in memory chips related to AI and data centers. However, the cumulative effects of export restrictions, product delays, and trade troubles were key factors behind Samsung’s prolonged earnings declines and market share loss in 2023.
Samsung reported a significant loss of 14.9 trillion won ($11.2 billion) for its device solutions unit in 2023, compared to a profit of 23.8 trillion won ($17.8 billion) the previous year. The company's profit for the December quarter declined by 35%, amounting to approximately 2.8 trillion won ($2.1 billion).
However, Samsung remains optimistic about a potential revival in mobile device demand in the coming year. The company anticipates a gradual market recovery in the upcoming year and the introduction of innovative products such as AI-powered smartphones to stimulate demand in the smartphone market.
In a positive note, tablet sales experienced growth due to enticing new product launches. Samsung expects ongoing macroeconomic uncertainties and challenges in the near term but remains optimistic about a rebound in the smartphone market in 2024. The company anticipates moderate improvement in earnings for the first half of 2024, with a more significant upturn projected for the second half of the year. Samsung's profit decline aligns closely with the company's earlier earnings projection for the December quarter.
- In light of the US export ban on advanced AI chips, Samsung faced challenging global technological landscapes, with the discontinuation of sales to China and delayed rollouts of next-generation AI chips causing a stagnation in revenue from this sector.
- As the world continues to adopt artificial intelligence at a rapid pace in various sectors, Samsung's competitors like SK Hynix and Micron have gained significant market share by capitalizing on the demand surge for AI chips, which Samsung is currently struggling to meet, potentially impacting its global business performance.
