Samsung says it is making headway in AI chip supply

Samsung Electronics said it would focus on producing high-end chips and was making progress on a major supply deal, as it sought to allay investor concerns over its semiconductor business that suffered a 40% quarter-on-quarter profit plunge.

comments by an executive on an earnings call helped lift Samsung shares more than 3% on Thursday, reversing earlier losses. stock has been one of worst performers among major chipmakers this year, losing nearly a quarter of its value, as South Korean firm has struggled to catch up with rivals TSMC and SK Hynix that posted record third-quarter earnings on back of artificial intelligence boom.

"While re was a delay in commercialising HBM3E sales as we had flagged earlier, we have made meaningful progress in product's qualification test process with a major customer," Samsung Executive Vice President Jaejune Kim told analysts, referring to high-end memory chips used to make AI chipsets.

"As a result, we expect improved (HBM3E) sales in fourth quarter and plan to expand sales to multiple customers."

It did t disclose major client, but analysts have said qualification test has been conducted by Nvidia, which controls around 80% of global AI chip market.

Reuters also reported earlier that Samsung's HBM3E chips had passed Nvidia's tests for use in U.S. firm's processors.

"Samsung's comments ...suggest that company is expected to finally supply HBM3E chips to Nvidia, clearing a major hurdle in its HBM business," said Ryu Young-ho, a senior analyst at NH Investment & Securities.

Shares in SK Hynix tumbled as much as 4.6% on Thursday, hit by concerns of HBM chip oversupply following Samsung's comments.

Artificial intelligence is only bright spot in sluggish chip market, but Samsung has been struggling to supply high-end semiconductors used in AI chipsets, making it more vulnerable to lacklustre demand for traditional chips used in PCs and smartphones.

"In fourth quarter, while memory (chip) demand for mobile and PC may encounter softness, growth in AI will keep demand at robust levels," Samsung said in an earnings statement.

"Against this backdrop, Company will concentrate on driving sales of High Bandwidth Memory (HBM) and high-density products," it said.

world's biggest maker of memory chips, smartphones and TVs also warned on Thursday of limited earnings growth in current quarter due to intensifying competition in consumer electronics segment during peak year-end demand season.

Samsung posted an operating profit of 9.2 trillion won ($6.66 billion) in July to September period, compared with 2.4 trillion won a year earlier and 10.4 trillion won previous quarter.

third-quarter result was slightly above Samsung's preliminary estimate of 9.1 trillion won flagged earlier this month, which was below market expectations at time.

Samsung this month made a rare apology for its disappointing earnings, citing "delays" in sales of its advanced chips and rising supply of traditional chips from Chinese rivals.

SLOW CHIP RECOVERY

Samsung's chip division swung to an operating profit of 3.9 trillion won in third quarter from a loss of 3.8 trillion won a year earlier, but that was down from 6.45 trillion won preceding quarter.

Samsung said its chip earnings were hurt by one-off expenses such as provision of employee incentives, and currency effects due to a weak dollar.

"Samsung hasn't commercialised HBM as effectively as its competitors, so its third-quarter performance and fourth-quarter outlook are falling short of market expectations," said Baik Gil-hyun, analyst at Yuanta Securities.

"It's anticipated that it will take some time before business performs as expected."

SK Hynix had posted a record third-quarter operating profit of 7 trillion won, thanks to AI chip sales to Nvidia.

Samsung is struggling to compete against rivals t only in its mainstay memory chip business, but also in its foundry business that designs and produces logic chips for or clients. Analysts say Samsung's logic chip business suffered from widening losses in third quarter.

company has postponed taking deliveries of ASML's high-end chipmaking equipment for its upcoming factory in Texas as it has yet to win any major customers for project, sources previously told Reuters.

Samsung's mobile devices business also saw its third-quarter operating profit dropping to 2.8 trillion won from 3.3 trillion won a year earlier.