Samsung Faces 20% Profit Drop in Mobile Division Amid Slowing Chip Demand in Q3

Samsung Electronics has received disappointing sales in its premium foldable phone range and increasing competition from Chinese rivals weighs on the company’s performance. 

Per Reuters, Analysts expect the mobile and network divisions to report a 20% drop in operating profit, falling to 2.6 trillion won for the third quarter, compared to the same period last year. 

Huawei and other Chinese manufacturers have increased competition, particularly in the foldable phone market, causing Samsung to struggle to maintain its top place in the market.

Again, Samsung’s non-memory chip division, which focuses on chip design and contract manufacturing, is also facing some difficulties. 

The company is lagging behind industry leader TSMC, which counts major clients like Apple and Nvidia among its customers. As a result, analysts predict that this division will again report a loss for the third quarter, underlining Samsung’s challenge to keep up with competitors in this segment.

Samsung has also been forced to cut up to 30% of its overseas staff in certain divisions, pointing to even more challenges facing the company. Despite these issues, the company’s operating profit is expected to show a good increase compared to the previous year, driven largely by the recovery in the memory chip market. However, this rebound has been slower than anticipated, particularly in the area of AI chips.

Analysts forecast that Samsung’s operating profit for the third quarter will reach 10.33 trillion won ($7.67 billion), up from 2.43 trillion won a year ago. However, this figure remains largely unchanged from the 10.44 trillion won reported in the previous quarter, revealing a slowdown in the company’s recovery. 

The semiconductor market, particularly chips used in artificial intelligence (AI) servers, has been a key driver of this growth. However, demand for more conventional chips, such as those used in smartphones and PCs, is recovering at a slower pace.

Samsung has been slow to capitalise on the growing AI chip market, falling behind competitors SK Hynix and Micron, which have been quicker to supply high-end AI chips to Nvidia. Compounding these challenges, Samsung’s greater exposure to the Chinese market and its focus on traditional mobile chips make it more vulnerable to geopolitical risks and fluctuating demand.

The company’s core chip division is expected to post an operating profit of 5.5 trillion won for the quarter, a strong recovery from last year’s losses. However, this represents a 15% decline from the previous quarter, partly due to provisions for employee bonuses. Some analysts, like Daniel Kim from Macquarie Equity Research, warn that if the market for commodity DRAM chips continues to soften, Samsung could lose its position as the top DRAM supplier.

In contrast, Micron, one of Samsung’s key competitors, has benefitted from strong demand for AI-related memory chips, reporting its highest quarterly revenue in over a decade. Samsung’s shares have fallen 23% this year, in an obvious contrast to SK Hynix, which has seen its stock rise by the same margin.

Samsung is expected to release its preliminary third-quarter earnings report on Tuesday, with full financial details to follow later in the month. At the time of writing, the exchange rate was 1,336.39 won to the US dollar.