Samsung Struggles with a Continued Chip Slump as Investment in AI Calls

In a persistent tale of economic challenges, Samsung Electronics Co. has revealed its fourth consecutive quarterly sales drop, underscoring the ongoing struggles in the memory chip industry and impacting the world's leading memory chip producer. South Korea's corporate giant reported a notable 13% decrease in sales, totaling 67 trillion won ($50 billion) during the third quarter. This figure, while reflecting market expectations, highlights the gravity of the sector-wide slump that has gripped Samsung.

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In a persistent tale of economic challenges, Samsung Electronics Co. has revealed its fourth consecutive quarterly sales drop, underscoring the ongoing struggles in the memory chip industry and impacting the world's leading memory chip producer. South Korea's corporate giant reported a notable 13% decrease in sales, totaling 67 trillion won ($50 billion) during the third quarter. This figure, while reflecting market expectations, highlights the gravity of the sector-wide slump that has gripped Samsung.

The operating profit of 2.4 trillion won mirrors estimations of a substantial 78% plunge. Samsung, alongside its industry counterparts, including SK Hynix Inc. and Micron Technology Inc., grapples with an industry downturn. Manufacturers of personal computers and smartphones, core clients of the memory chip industry, have trimmed their orders due to sluggish demand for tech gadgets and an oversupply of chips.

Recently, the United States granted Samsung and Hynix an exemption, allowing them to procure necessary equipment for their Chinese chipmaking operations, reducing uncertainty in their expansion plans. CLSA Securities Korea analyst Sanjeev Rana emphasized that the waiver assures the seamless production and operations of Korean memory suppliers in China, enabling long-term investments and improved competitiveness.

Samsung now strategically positions itself to capitalize on the impending AI-related technological surge, ignited by the widespread enthusiasm generated by OpenAI's ChatGPT debut last year. The South Korean tech giants find themselves in a race to develop AI training tools, where Samsung aims to catch up with Hynix, the exclusive provider of next-gen DRAM for AI chipmaker Nvidia Corp. Samsung's ambitious goal is to double its high-bandwidth memory production capacity by 2024, crucial for accelerating AI training.

Until AI demand picks up, Samsung and Hynix plan to manage economic uncertainties by cutting NAND chip production for PCs and phones, stabilizing DRAM and NAND prices, and indicating potential market stabilization.

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While awaiting a more comprehensive earnings report later in the month, Samsung maintains its expectations of a sales rebound in the second half of the year. The company also strives to compete in the foundry business, where it currently trails Taiwan Semiconductor Manufacturing Co. TSMC's quarterly sales saw a lesser decline than anticipated, thanks to growing demand from AI industry players.

Industry investors eagerly anticipate the translation of AI chip orders into revenue. However, this outlook is clouded by escalating inflation and geopolitical turbulence. Samsung, once a beacon in the memory sector, expanded its capacity to meet pandemic-induced demand, but this move resulted in significant inventories for the company and its major customers.

The struggle continues for Samsung in the tumultuous world of memory chips as it simultaneously positions itself to seize opportunities in the forthcoming AI revolution.