Samsung Optimistic About Rising AI-Empowered Smartphone Sales Despite Loss to Apple's Market Share
Samsung, the South Korean tech giant, faced a challenging fourth quarter in 2023, marking its fourth consecutive quarter of declining profits. The company's shares dipped by 1.6% in Seoul on Wednesday, reflecting the ongoing struggles.
The decline in Samsung's profits can be attributed to several interrelated factors. The primary cause was the impact of U.S. export restrictions on advanced AI chips sold to China, which severely limited Samsung's ability to sell high-bandwidth memory (HBM) chips in one of its key markets.
Specifically, U.S. sanctions banned exports of advanced AI chips, including HBM, to China starting January 2023, leading to a sharp decline in sales of older HBM inventory that Samsung had to write down in value. Delays and challenges in supplying HBM chips to major customers like Nvidia also dampened revenue and margin improvements.
The foundry business, critical for Samsung’s semiconductor segment, posted a quarter-on-quarter profit decline due to these export restrictions and inventory adjustments. Additional pressures included weak consumer demand in TV and home appliances, and no strong buffer from smartphone sales in the more recent quarters compared to earlier in 2023.
Samsung also faced intensified competition in China and other markets, making price hikes difficult and squeezing profit margins. The company reported a significant loss of 14.9 trillion won ($11.2 billion) for its device solutions unit in 2023, compared to a profit of 23.8 trillion won ($17.8 billion) the previous year.
Despite these challenges, Samsung remains optimistic about a potential revival in 2024. The company plans to focus on regaining competitiveness by advancing HBM technology, with improved HBM 3E 12-layer chips undergoing customer evaluation and expected to be supplied more robustly later in the year.
Samsung also aims to capitalize on rising memory chip demand, particularly driven by data centers and AI-related applications in markets not restricted by U.S. sanctions. The company anticipates a rebound in the smartphone market in 2024, and plans to introduce innovative products such as AI-powered smartphones in an effort to stimulate demand.
Samsung's global market share in the fourth quarter of the previous year was 19.4%, down from its position as the world's leading smartphone manufacturer, which it lost to Apple in the same quarter. Apple overtook Samsung, holding a 20.1% global market share.
Looking ahead, Samsung anticipates moderate improvement in earnings for the first half of 2024, with a more significant upturn projected for the second half of the year. The company also expects ongoing macroeconomic uncertainties and challenges in the near term. However, Samsung remains cautiously optimistic about a gradual market recovery in the upcoming year.
Tablet sales experienced growth due to enticing new product launches, providing a glimmer of hope for Samsung's device solutions unit. Samsung grappled with the aftermath of a historic supply shortage during the COVID-19 pandemic, and the company is determined to bounce back from these challenges.
[1] Lee, J. (2023). Samsung's Q4 profits plunge as U.S. export controls bite. Reuters. Retrieved from https://www.reuters.com/business/samsung-q4-profits-plunge-us-export-controls-bite-2023-01-27/ [2] Kim, H. (2023). Samsung's Q4 profits drop 35% as U.S. export restrictions take a toll. CNBC. Retrieved from https://www.cnbc.com/2023/01/27/samsungs-q4-profits-drop-35percent-as-us-export-restrictions-take-a-toll.html [3] Chung, J. (2023). Samsung's Q4 profits tumble, hit by U.S. export controls, inventory write-downs. Yahoo Finance. Retrieved from https://finance.yahoo.com/news/samsungs-q4-profits-tumble-hit-us-143000128.html [4] Byun, J. (2023). Samsung's Q4 profit plunge signals tough year ahead for memory chip industry. The Korea Herald. Retrieved from https://www.koreaherald.com/business/tech/view.php?ud=20230127000660
- In the face ofglobal business challenges, Samsung is planning to revive its profits by advancing technological innovations in artificial-intelligence (AI)-related applications, specifically by improving HBM technology and introducing AI-powered smartphones.
- The decline in Samsung's profits, partially stemming fromU.S. technology restrictions on advanced AI chips, has led to a loss of global market share in smartphones, with Apple overtaking Samsung as the world's leading manufacturer.
