In this biweekly edition, Roula Khalaf, the chief of the Financial Times (FT), personally selects her favorite articles.
There is optimism among investors that the earnings of semiconductor manufacturers will align with the global upsurge in demand for AI chips witnessed last year. This growth was primarily fueled by a surge in demand. Notably, Samsung, a significant player in the industry, is poised to announce its lowest revenue in 15 years.
According to the guidance released on Tuesday, the South Korean tech giant anticipates a 35% decline in operating profit for the fourth quarter. This shortfall compared to business forecasts marks the seventh consecutive quarter of decreasing operating profit. With an operating profit of Won2.8tn ($2.1bn) in the December quarter, it signifies the first instance since 2008 that its annual figure has dropped below WON10tn.
Various global factors contribute to this downturn. The slowdown in economic growth and rising inflationary pressures have prompted consumers to reduce their purchases of electronic devices such as smartphones, computers, and televisions. The overall chip demand continues to be affected by the prolonged aftermath of the semiconductor market decline that worsened earlier this year.
However, a significant part of the issue is specific to the company itself. Samsung has lagged behind its rivals in two fiercely competitive sectors: manufacturing device contracts and AI chip-related systems. Over the recent years, TSMC has strengthened its position in the foundry industry, responsible for manufacturing chips on behalf of other companies. Data from Counterpoint research indicates that TSMC holds 59% of the global market share, while Samsung’s share has dwindled to a mere 13%.
The surge in demand for high-speed memory, particularly HBM (High Bandwidth Memory), a vital component of AI chips, has driven advancements in memory chip production. SK Hynix, a competitor of Samsung, was the sole company capable of mass-producing the latest HBM3 products, used in Nvidia’s latest accelerators, for most of the previous year. With this early advantage, SK Hynix was well-placed to capitalize on the surge in AI chip demand from the previous year, leaving Samsung vying for market share.
One area of concern is the increase in memory chip prices despite the decline in revenue, which rose by around ten percent in the last quarter.
Samsung’s shares are trading at 24 times the forward revenue, nearly a 50% premium to TSMC, and have increased by a quarter over the past year. The chip stock frenzy from the previous year significantly impacted foreign investors. However, this enthusiasm now seems exaggerated. Justifying this premium for Samsung will become progressively challenging.
The Financial Times’ concise daily finance column, known as Lex, features expert writers from four major financial hubs offering timely insights on prominent companies and financial trends. For more in-depth analysis, please visit their website.
