Samsung Electronics Q3 has the benefit of increased profits, but the chip business remains sluggish

Samsung Electronics on Thursday said its net profit rose in the third quarter, but its sluggish artificial intelligence chips weighed heavily on its flagship semiconductor business.

The tech giant posted a profit of 10.1 trillion won ($7.3 billion) in the July-September period, up 72.8 percent from a year earlier, the company said in a regulatory filing, Yonhap news agency reported.

Its operating profit increased by 277.4 percent to 9.18 trillion won from 2.43 trillion won last year. Revenue rose 17.3 percent to 79.09 trillion won, setting a new quarterly record and surpassing the previous high of 77.8 trillion won in the first quarter of 2022.

Operating profit was 10.8 percent lower than the average, according to a survey by Yonhap Infomax, the financial data company of Yonhap News Agency. Estimated gross profit not available.

Samsung Electronics said the company’s profit was negatively affected by strong earnings, which reduced its operating profit by 500 billion won compared to the previous quarter.

The company’s chip unit saw its operating profit reach 3.86 trillion won in the third quarter, from a deficit of 2.18 trillion won last year. The reading, however, shows a sharp decline from the 6.45 trillion net profit in the previous quarter.

Analysts were expecting a strong performance from the chip segment, with the market forecast at 4.2 trillion won over the three-month period.

The world’s largest memory chip maker attributed the sharp quarterly decline in semiconductor profits to one-off items.

“Performance decreased due to reduced impairment losses compared to the previous quarter, one-time expenses such as benefits provision, and currency effects due to the weak dollar,” the company said in a statement.

In the high-performance, high-value high bandwidth (HBM) market, Samsung Electronics is trailing chipmaking rival SK hynix Inc.

SK hynix announced that it has begun mass production of 12 industry-leading HBM3E chips last month, while Samsung Electronics’ HBM3E products are being tested by Nvidia, a key customer in the AI ​​market.

Despite the challenges, Samsung Electronics’ memory division has seen growth due to growing demand for AI applications and data center investments. Sales of HBM and other server-oriented chips, such as DDR5 and SSDs, boosted the segment’s third-quarter profit to 7 trillion won, in addition to reducing losses in basic components and LSI systems.

Samsung Electronics said its devices division, which includes mobile phones, TVs, and home appliances, posted 45 billion won in sales and 3.4 trillion won in operating profit.

The mobile segment continued to underperform, driven by the launch of new foldable smartphones, tablets and wearable products.

High-end TVs, including Neo QLED and OLED models, also contributed to the increase in revenue in this segment.

Samsung Electronics said it invested 12.4 trillion won in facilities in the third quarter, while 10.7 trillion won was allocated to semiconductor production.

Annual institutional investment is expected to stand at 56.7 trillion won, which is a 3.6 trillion won increase from 2023.

In research and development, Samsung Electronics spent 8.9 trillion won in the July-September period.

In the fourth quarter, Samsung Electronics said it plans to strengthen its leadership in premium products and AI capabilities, especially in HBM products, by improving competition in advanced technologies amid heightened macroeconomic uncertainty.

“The DS Division, or chip business, will address the demand for differentiated products based on advanced technology and high-value products such as HBM and SSDs for servers,” the company said.