Profits plummeted 78 percent, losses hit records: it turned out to be it again

Pencil Dao author 丨 Summer Rain

Samsung Electronics expects an operating profit of 1.8 trillion won (about 9.835 billion yuan) in the third quarter, down 78% year-on-year. This performance was worse than the market expected.

Samsung Electronics' profits have plummeted for three consecutive quarters, falling by 78%, 95.26% and 95% respectively.

The main reason for the collapse in profits is still the sluggish global semiconductor market, and the demand for chips for electronic products such as mobile phones, computers and cars has not yet recovered. Market watchers expect Samsung Electronics' semiconductor division to lose 3 trillion won in the third quarter.

The good news is that this quarter's profit is nearly three times higher than the previous quarter, perhaps a sign of a bottoming out.

In fact, due to the large environmental impact, profits have fallen sharply not only Samsung Electronics, but also Qualcomm and TSMC's profits have also fallen sharply.

Samsung Electronics has six divisions: DX (devices for smartphones and digital appliances), VA/DA (consumer electronics such as TVs), MX/Networks (communication equipment such as smartphones), DS (semiconductors), SDC (displays), and Harman (automotive equipment).

Among them is the DS sector, which is a barometer for the entire industry.

In the first half of this year, Samsung Electronics' main chip business suffered a record loss of 8.94 trillion won (about 49.930 billion yuan).

Samsung Electronics continued to cut its memory chip production, including NAND flash memory used in smartphones and personal computers, after the second-quarter earnings report. In April this year, a round of memory chip production cuts has begun.

Although there are consecutive huge losses, the wave of generative artificial intelligence brought by ChatGPT has given Samsung Electronics confidence. Samsung Electronics is trying to get more orders for chips for generative artificial intelligence. It said it plans to double production of high-performance memory chips, such as high-bandwidth memory (HBM), by 2024 due to strong demand for artificial intelligence.

HBM is used in artificial intelligence, 5G, Internet of Things (IoT), graphics processing applications, virtual reality and augmented reality systems, and offers faster data processing and lower power consumption than traditional NAND. In particular, it can work better with chips that train artificial intelligence. Samsung Electronics also said it will continue to invest in semiconductors, with more than 90 percent of its capital expenditure of up to 14.5 trillion won going to chips throughout its quarter.

In other words, the semiconductor industry will usher in a structural shift: demand for high-density, high-performance products will remain strong.

According to South Korean brokerage KB Securities, HBM3, the fourth-generation HBM technology, is expected to account for 18% of Samsung's chip sales revenue by 2024, up from 6% expected this year. Jing Qixian, president and head of DS division, said at a company meeting earlier this month that Samsung will strive to control more than half of the HBM market. In 2022, HBM's market share will be 50% for SK Hynix, about 40% for Samsung, and about 10% for Micron.

However, generative AI is hot, and most of the demand brought by it is medium and long-term, and it may not be able to quench the near thirst.

As said in an article by Tiger Sniff: At present, AI chips are difficult to become a "lifesaver" for major fabs, because "the core problem is that the AI chip market is almost insignificant compared with the consumer market." According to statistics from Precedence Research, a third-party market research agency, the global AI chip market (including various GPUs, CPUs and integrated circuits for high-performance computing) will be $16.8 billion in 2022, while Apple's orders on TSMC alone reached $17 billion during the same period. "Taking TSMC as an example, AI chips account for only 6% of total revenue, and the majority are smartphone chips (33%). The cooling of the consumer electronics market is difficult to make up for by the frenzy of the AI market in a short period of time.

TSMC President Wei Zhejia directly told analysts: "Even if we have very good demand for AI chips, it is still not enough to offset all these macro impacts."

In addition, Samsung Electronics also said that in addition to chips for generative artificial intelligence, automotive memory chips will be the second growth curve, and the average growth rate in the next five years is expected to exceed 30%.

In the semiconductor field, Samsung Electronics is also facing the catch-up of Chinese companies, such as Yangtze River Storage and SMIC.

Some media believe that it is necessary to take seriously the phenomenon of continuous large losses of industry giants led by Samsung Electronics. Over the past 10 years, vendors have enjoyed long periods of high revenue as data demand has exploded. Today, even Samsung Electronics is inevitable to continue to lose money, the industry's waist enterprises may have a harder time, and a new round of industry reshuffle may occur. Because in order to maintain the company's competitiveness in the industry, the next round of huge investment is bound to be through round after round of huge investment, semiconductor companies that do not have enough financial resources or cannot keep up, may face elimination, such as the earlier giant Western Digital and so on.

Actually, throwing money has already begun. Samsung Electronics expects to invest 300 trillion won over the next 20 years to build a semiconductor production base, which will include five chip factories and attract up to 150 materials, component and equipment manufacturers, IC design factories, and semiconductor R&D institutions.

With the rise of generative artificial intelligence, the demand for high-end semiconductors will also increase, and it is hoped that Chinese companies will also have a place.