Samsung Electronics: A Quarter of Quadrupled Profits

Samsung Electronics Co., Ltd., the global leader in memory chips, smartphones, and TVs, is set to report a staggering 274% increase in its operating profit for the third quarter of 2024. The South Korean tech giant's earnings are expected to reach an impressive 10.33 trillion won ($7.67 billion), marking a significant turnaround from the 2.43 trillion won reported in the same period last year.

The remarkable surge in profits can be attributed primarily to the chip division, which has witnessed a strong recovery in demand for semiconductors. The global semiconductor market has rebounded from its 2023 downturn, driven by the increasing demand for chips used in AI servers. However, the recovery in demand for conventional chips used in smartphones and PCs has slowed, according to analysts.

Samsung's bread-and-butter chip division is expected to post an operating profit of 5.5 trillion won, a 15% decrease from the preceding quarter. This decline can be partially attributed to Samsung setting aside provisions for bonuses. Despite the slight dip, the chip division's performance remains robust, reflecting the company's continued dominance in the semiconductor market.

Samsung's late response to the higher-margin AI chip market has put it at a disadvantage compared to smaller rivals such as SK Hynix and Micron. The company is scrambling to catch up and supply high-end AI chips to Nvidia, while also facing growing competition from Chinese rivals for commodity chips. This increased competition and geopolitical risks have made Samsung more vulnerable to market fluctuations.

To maintain its market leadership, Samsung is implementing various strategies. The company is investing heavily in research and development to improve its AI chip capabilities and compete with its rivals. Additionally, Samsung is cutting up to 30% of its overseas staff at some divisions, indicating a focus on streamlining operations and reducing costs.

In the mobile phone and network businesses, Samsung's operating profit is expected to reach 2.6 trillion won, a 20% decrease from the previous year. The company faces increasing competition from Chinese rivals such as Huawei, which may impact its foldable phone sales and overall profitability.

Despite the challenges, Samsung Electronics shares have fallen by only 23% so far this year, lagging behind SK Hynix's 23% rise. The South Korean firm will announce its preliminary third-quarter earnings on Tuesday, followed by the full figures later this month. As the global semiconductor market continues to evolve, Samsung's ability to adapt and innovate will be crucial in determining its future success.