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Samsung’s Q4 Profit Misses Expectations as Chip Issues and Rising Costs Weigh on Earnings

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Samsung Electronics has reported a significant shortfall in its preliminary fourth-quarter operating profit, primarily due to challenges in its semiconductor business. The South Korean tech giant estimates an operating profit of 6.5 trillion won ($4.5 billion) for the three months ending Dec. 31, well below analyst expectations of 7.7 trillion won. Although the expected profit represents a 131% year-on-year increase, it marks a 29% decline compared to the previous quarter.

The company’s earnings were affected by rising research and development (R&D) costs and the ramp-up of manufacturing capacity for advanced semiconductors. Additionally, weak demand for conventional memory chips used in PCs and mobile phones further contributed to the dip in profits.

Samsung’s efforts to provide high-end chips to Nvidia have also posed challenges. Unlike its rival SK Hynix, which is Nvidia’s main supplier of high-bandwidth memory (HBM) chips used in AI GPUs, Samsung has struggled to meet the tech giant’s chip requirements. Nvidia’s CEO, Jensen Huang, mentioned that Samsung needs to “engineer a new design” to supply HBM chips, although he expressed confidence in Samsung’s ability to meet this challenge.

The disappointing earnings also extended to Samsung’s logic chip division, which designs and manufactures chips for mobile phones. Analysts estimate losses could have widened to about $1.5 billion in the fourth quarter due to lower production yields and reduced demand for mobile devices, including Samsung’s premium foldable phones.

Despite the weak earnings, Samsung’s shares saw a slight uptick, with analysts noting that the company’s woes were already factored into stock prices. Competition in the chip and mobile sectors remains intense, and analysts are cautiously optimistic that chip demand may have bottomed out.

 

Asian Chip Stocks Mostly Rise Despite New U.S. Semiconductor Export Curbs on China

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INTRODUCTION

On Tuesday, major Asian chip stocks, excluding those in China, saw positive gains despite the announcement of a new round of U.S. semiconductor export restrictions targeting China’s chip production capabilities. The Biden administration’s latest move aims to hinder China’s access to advanced semiconductor technology that could potentially aid its military advancements.

KEY POINTS

Performance of Asian Chip Stocks

  • Taiwan Semiconductor Manufacturing Company (TSMC):
    The world’s largest contract chip supplier saw a 2.4% increase in its stock price.
  • Japanese Chip Stocks:
    Several Japanese chip-related companies experienced gains:

    • Tokyo Electron rose 4.7%.
    • Lasertec climbed 6.7%.
    • Advantest gained 3.9%.
    • Renesas Electronics advanced 2.2%.
  • Softbank:
    Softbank, which holds a stake in the British chip designer Arm, saw its shares rise by 3.6%.

Impact on South Korean Chip Makers

  • Samsung and SK Hynix:
    Despite the new U.S. restrictions, shares of Samsung Electronics rose by 0.9%, and SK Hynix saw an increase of 1.8%.

    • Derrick Irwin, portfolio manager at Allspring Global Investments, stated that the impact on high-bandwidth memory chips from South Korean players would be limited. He believes that these companies could shift demand to markets like the U.S., minimizing the effect of the curbs.

Details of U.S. Export Restrictions

  • Targeted Companies:
    The U.S. Department of Commerce imposed restrictions on 140 new companies, including major Chinese firms like Naura Technology Group, Piotech, and ACM Research. These companies are now on the U.S. export control list.

    • In China, Naura Technology’s shares fell 3%, while ACM Research dropped by 1%. Piotech, however, saw a 1% rise.
    • Semiconductor Manufacturing International Corporation (SMIC), China’s largest chipmaker, saw a 1.5% drop in Hong Kong.
  • Scope of Restrictions:
    The new U.S. controls also include restrictions on 24 types of manufacturing equipment and three types of software tools essential for semiconductor production.

    • Reason for Restrictions: U.S. Secretary of Commerce Gina Raimondo emphasized that these measures were designed to impair China’s ability to produce advanced technologies that pose a national security risk to the U.S.

Concerns and Compliance Issues

  • Huawei and TSMC:
    A report last month raised questions about the effectiveness of U.S. chip restrictions after a TSMC-made chip was found in a Huawei product.

    • In response, the U.S. has implemented new “red flag guidance” to address compliance concerns and introduced several regulatory changes to enhance the effectiveness of its semiconductor controls.

CONCLUSION

Despite the recent U.S. export curbs targeting China’s semiconductor sector, major Asian chip stocks largely rose, with companies like TSMC and key Japanese players leading the charge. While the new restrictions may impact Chinese companies and South Korean chipmakers to some extent, analysts suggest that the overall effect on the broader market could be limited, as companies pivot to other markets.

 

SK Hynix Spurs Rally in Asian Semiconductor Stocks with Mass Production of Advanced AI Chip

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SK Hynix shares surged by over 9% on Thursday after the South Korean chipmaker announced the mass production of a new high-bandwidth memory (HBM) chip designed for AI applications. The company revealed that the HBM3E chip, the first 12-layer version of its kind, will be ready for delivery by the end of the year. This updated chip boasts a 36 GB capacity, marking a 50% increase from the previous 8-layer version, all while maintaining the same physical thickness.

SK Hynix has positioned itself as a key player in the AI memory chip market, supplying HBM chips to major tech firms like Nvidia. With the new 12-layer HBM3E chip, the company seeks to solidify its dominance in the space, offering advanced solutions for high-end generative AI workloads.

HBM chips are dynamic random access memory (DRAM) components that are stacked vertically, allowing for more compact designs and reduced power consumption. The global HBM market is currently dominated by SK Hynix, Micron Technology, and Samsung Electronics.

Micron Technology also made headlines by issuing better-than-expected revenue and profit forecasts for its fiscal first quarter, citing strong demand for HBM chips. Micron expects $8.7 billion in revenue and profits of $1.74 per share, surpassing market estimates. This positive outlook, coupled with SK Hynix’s announcement, led to a rally in Asian semiconductor stocks.

In Japan, Tokyo Electron’s shares rose 7%, and Advantest climbed 5%, while Samsung Electronics saw a 3% gain. The South Korean Kospi index also responded positively, increasing by 2% as the sector benefitted from these developments.