By Kwanwoo Jun


Samsung Electronics reported sharply lower earnings in its flagship semiconductor business despite better-than-expected net profit overall for the third quarter.

The mixed results come as the South Korean technology giant faces the twin challenge of catching up with industry rivals in supplying more advanced artificial-intelligence chips and mitigating the impact of lower-end chips from China flooding the markets.

Net profit for the July-September period climbed 73% from a year earlier to 10.101 trillion won, equivalent to $7.32 billion, beating a FactSet-compiled consensus estimate of 8.601 trillion won. Profit rose 2.6% from the previous quarter, the company said Thursday.

Revenue for the quarter increased 17% to 79.099 trillion won and operating profit rose nearly fourfold to 9.183 trillion won, largely in line with the company's preliminary estimates.

The company on Thursday said its flagship chip-making division generated an operating profit of 3.860 trillion won, down 40% from the prior quarter. That compared with smaller rival SK Hynix's 7.030 trillion won profit for the period.

Samsung earlier this month issued a rare apology to investors while guiding for downbeat quarterly earnings and acknowledging delays in supplying the latest version of its high-bandwidth-memory products to AI-chip maker Nvidia and other major customers.

The company's stock has dropped about 25% this year, while shares in South Korea's SK Hynix and Micron Technology of the U.S.--rival makers of HBM--have gained more than 30% and 20%, respectively. Taiwan Semiconductor Manufacturing's shares have jumped more than 70% this year.

The AI boom has driven strong demand for high-performance and powerful computing chips to train and operate generative AI models such as the one behind chatbot ChatGPT.

Samsung, the longtime memory-market leader, has underperformed SK Hynix, Micron and TSMC in the AI-fueled chip manufacturing sector. While its rivals are already supplying Nvidia with advanced HBM3E products, Samsung has struggled to get its latest chip certified for use in Nvidia's graphics-processing units crucial for AI computing.

Challenges for South Korea's biggest company also come from a huge output increase from Chinese chip makers. Analysts say China's oversupply could cause lower-end chip prices to keep falling and derail the recovery of the memory-chip market. The aggressive output expansion, which largely focuses on legacy chips, or older-generation semiconductors, used in smartphones and home appliances, could force chip manufacturers to cut production or dump excess goods on global markets.

Samsung said Thursday that it expects some mobile-chip corporate customers to adjust their inventories further.

The company said its chip business will focus on higher-end products such as advanced HBM products, double-data-rate 5 chips and solid-state drives for data servers. It plans to invest 56.7 trillion won in facilities for 2024, 3.6 trillion won more than last year, as it pushes to increase its sales of HBM3E products and develop upgraded HBM4 products by the end of this year.

Samsung said bigger-than-expected one-off bonus payments to employees also pressured the latest earnings.

The company said potentially weaker sales of finished electronics goods could weigh on growth in the fourth quarter. Its smartphone business was a bright spot amid the overall dim earnings picture for the third quarter. Revenue and operating profit from its mobile-experience division rose 11% and 26%, respectively, from the previous quarter.


Write to Kwanwoo Jun at kwanwoo.jun@wsj.com


(END) Dow Jones Newswires

10-30-24 2316ET