Seoul (AFP) – The operating profit of South Korean tech giant Samsung Electronics sank almost a third in the fourth quarter owing to spending on research, the company said Friday, as analysts said it was struggling to meet demand for chips used in AI servers. The news comes as industry leaders try to assess the outlook for the sector after Chinese startup DeepSeek unveiled a groundbreaking chatbot that performed as well as artificial intelligence pacesetters — apparently for a fraction of the cost.
The world’s largest memory-chip maker had already acknowledged in October that it was facing a “crisis,” and recognized that questions had arisen about its “fundamental technological competitiveness and the future of the company.” It reported that operating profit fell to 6.5 trillion won ($4.5 billion) in the October-December period, down from 9.18 trillion won in the previous three months. However, this figure was up 130 percent compared to the previous year. Sales rose 11.8 percent to 75.78 trillion won, and net profit increased by 22.2 percent to 7.75 trillion won on a yearly basis, surpassing forecasts according to Yonhap News Agency.
The firm explained that the fourth-quarter drop was due to “soft market conditions especially for IT products, and an increase in expenditures including R&D,” as well as the “initial ramp-up costs to secure production capacity for cutting-edge nodes.” It warned that in the first three months of 2025, “overall earnings improvement may be limited due to weakness in the semiconductors business.”
US tech giant Nvidia, whose semiconductors power the AI industry, has been relying on SK Hynix as its main supplier of high-bandwidth memory (HBM) chips for its AI graphics processing units (GPU). However, Samsung has been struggling to meet the US firm’s requirements. Gloria Tsuen, a Moody’s Ratings vice president and senior credit officer, told AFP that Samsung’s technology leadership “in the semiconductor market has been eroded over the last few years.” She added, “The rapidly increasing demand for AI chips also heightens the technological difficulty in developing new, custom-made chips for customers in a timely manner.”
Neil Shah of Counterpoint Research indicated that Samsung’s “conservative” moves to focus on costs relative to more challenging customer demands had been “key factors for the headwinds.” Still, Bloomberg reported Friday that Samsung had obtained approval to supply a “version of its fifth-generation high-bandwidth memory (HBM) chips” to Nvidia, citing people familiar with the matter. Samsung declined to comment when asked by AFP about the report.
The earnings figures come as the tech world is shaken by news of DeepSeek’s new R1 chatbot, which sparked a rout in tech titans — Nvidia dived 17 percent Monday — and raised questions about the hundreds of billions of dollars invested in AI in recent years. The Chinese startup has claimed to use less-advanced H800 chips — permitted for export to China until late 2023 — to power its large learning model. Concerns over the impact of DeepSeek battered stocks in Seoul as the market reopened after an extended break Friday. Samsung ended down more than two percent, while SK Hynix lost 9.9 percent, having earlier plunged almost 12 percent during trading.
Jaejune Kim, executive vice president of Samsung’s memory business, stated in an earnings call that the company was “monitoring industry trends considering various scenarios,” as it also supplies HBM chips used in GPUs to various clients. “While it is premature to make judgements based on the currently limited information, we anticipate that long-term opportunities and short-term risks will coexist in the market,” he commented.
He added that Samsung was determined to “actively respond to the rapidly evolving AI market.” While Samsung faces fundamental technology headwinds, DeepSeek’s claims have “challenged the fundamental economics and investments for ongoing AI waves,” remarked Counterpoint’s Shah. “This ‘frugal innovation’ could potentially slow down or stretch the hundreds of billions of dollars in AI infrastructure investments over the years,” he said. “So, this could be a ‘blessing in disguise’ for Samsung, allowing them to take the time needed to perfect their solution or to lower costs,” he concluded.
© 2024 AFP
