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Samsung Q4 Earnings Expected to Be Hit by Nvidia AI Chip Supply Delay

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Samsung Electronics (005930.KS), the world’s largest memory chip maker, is forecasted to report slowed profit growth in the fourth quarter, as it struggles to meet Nvidia’s (NVDA.O) soaring demand for AI chips. Despite an expected operating profit of 8.2 trillion won ($5.6 billion) in the quarter ending December, up from 2.8 trillion won a year ago, this figure represents a decline from the previous quarter’s 9.18 trillion won.

Analysts have recently revised their earnings forecasts downward, with some projecting Samsung’s operating profit to fall below 8 trillion won. A key issue has been delays in Samsung’s supply of high-end AI chips to Nvidia, which has continued to impact Samsung’s earnings, despite an October apology from the company for its third-quarter performance and an earlier pledge to address the chip shortage.

In November, Samsung reshuffled its chip division leadership, naming its chip division chief co-CEO and granting him direct control over the struggling memory chip business. Meanwhile, Samsung’s shares fell 32% last year, underperforming the broader market’s 10% decline.

Contrastingly, SK Hynix (000660.KS), a major supplier of advanced AI memory chips to Nvidia, is expected to report record earnings for the fourth quarter, benefiting from strong demand for its products.

The broader semiconductor market is facing additional pressure, with weaker demand for traditional chips used in smartphones and PCs, and rising competition from Chinese chipmakers, leading to declining chip prices. DRAM prices, particularly DDR4 chips used in personal computers, have dropped as much as 13% in Q4 and are expected to fall another 15% in the current quarter, according to TrendForce.

The South Korean won’s depreciation in December to its weakest level in 15 years, fueled by political instability and concerns over U.S. tariffs under President-elect Trump, has provided some relief in the form of increased overseas earnings, but this has not been enough to offset weak chip prices.

Samsung is expected to release detailed results later in January, offering a breakdown of its earnings by business segment.

Tech Group Urges U.S. to Halt AI Chip Export Restrictions Amid Growing Concerns

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A coalition of tech companies, including Amazon (AMZN.O), Microsoft (MSFT.O), and Meta (META.O), has urged the Biden administration to reconsider a pending rule that would restrict global access to AI chips. The rule, which could be finalized as soon as Friday, is viewed by the Information Technology Industry Council (ITI) as a threat to U.S. leadership in artificial intelligence.

The proposed rule, backed by the U.S. Commerce Department, aims to regulate AI chip exports to prevent adversaries, particularly China, from gaining access to advanced technologies that could enhance their military capabilities. While the restrictions are framed as a national security measure, industry leaders argue that they could hinder U.S. companies’ ability to compete globally and inadvertently benefit foreign competitors.

In a letter to U.S. Commerce Secretary Gina Raimondo, ITI CEO Jason Oxman expressed concerns about the rushed nature of the rule. Oxman warned that implementing such a consequential policy at the end of President Biden’s term could result in unforeseen consequences, damaging the U.S.’s competitive edge in the rapidly growing AI sector.

The group called for a more measured approach, recommending that any new regulations be introduced as a proposed rule rather than a final one. They stressed the importance of considering the broader geopolitical and economic impact, which could jeopardize the U.S.’s position in global AI development.

The anticipated rule has sparked strong opposition within the tech industry, with the Semiconductor Industry Association and Oracle executives voicing their concerns. Oracle’s executive vice president, Ken Glueck, criticized the measure, describing it as an overly broad regulation that would impact nearly all commercial cloud computing globally.

The Commerce Department and the White House have yet to respond publicly to the mounting criticism, but the issue continues to garner significant attention from both industry leaders and policymakers as the Biden administration enters its final days.

US Implements New AI Chip Regulation to Control Global Access

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The U.S. government has introduced a new regulation to restrict global access to U.S.-designed artificial intelligence (AI) chips and technology. This regulation targets the export of advanced graphics processing units (GPUs), essential for building AI models, and aims to ensure that cutting-edge AI capabilities are developed and deployed securely and in trusted environments.

Which Chips Are Restricted?

The regulation focuses on GPUs, which were initially created to accelerate graphics rendering but have become critical for AI due to their ability to process large amounts of data simultaneously. U.S. companies, particularly Nvidia, dominate the production of these chips. GPUs like Nvidia’s H100 are used extensively in training advanced AI models, such as OpenAI’s ChatGPT.

What Is the U.S. Doing?

To regulate global access, the U.S. is extending restrictions on advanced GPUs, specifically those used in AI training clusters. The new rule sets limits based on compute power, measured by Total Processing Performance (TPP). For most countries, the cap is set at 790 million TPP until 2027, equivalent to roughly 50,000 H100 GPUs. These restrictions are meant to control access to the computing power required for large-scale AI research and applications.

However, certain companies, like Amazon Web Services and Microsoft Azure, that meet the requirements for special authorizations (called “Universal Verified End User” status) are exempt from these caps. Additionally, countries with “national Verified End User” status are allowed more advanced GPUs—about 320,000 over the next two years.

Exceptions to Licensing

There are exceptions for small GPU orders, such as those for universities or research institutions. Orders that do not exceed 1,700 H100 chips only require government notification and do not count toward the caps. This exception is designed to facilitate the global flow of AI technology for low-risk purposes.

GPUs intended for gaming are also excluded from the restrictions, ensuring that the gaming sector remains unaffected by the new rules.

Which Places Can Get Unlimited AI Chips?

Eighteen countries are exempt from the country-specific caps on GPUs. These countries include the U.S., Australia, Canada, Japan, South Korea, the European Union members, and Taiwan. This list reflects nations the U.S. considers aligned in terms of AI development and security.

What Is Being Done with ‘Model Weights’?

In addition to GPUs, the U.S. is regulating “model weights,” which are numerical parameters used in training AI models. These model weights, essential for refining the performance of AI algorithms, are considered sensitive information. The new rule establishes security measures to protect these parameters, ensuring that only trusted entities manage the most advanced AI systems.

Conclusion

The U.S. regulation reflects growing concerns over AI technology’s potential misuse and aims to ensure its responsible development. By controlling the flow of critical AI resources like GPUs and model weights, the U.S. seeks to maintain dominance in the AI field while preventing sensitive technology from reaching adversarial nations.