Samsung Plans to Increase AI Chip Production Following Earnings Disappointment

Samsung Electronics announced on Thursday that it will shift its focus towards the production of high-value chips and is ready to meet the increasing demand for advanced AI chips. This decision comes in the wake of disappointing quarterly earnings.

The company mentioned that it is making progress in providing its cutting-edge HBM3E chips to Nvidia, which dominates about 80 percent of the global AI chip market, and has plans to begin mass production of the next-generation HBM4 by the second half of next year.

Kim Jae-june, the executive vice president responsible for the memory chip division, stated during the earnings call for the July to September period, "We faced delays in bringing HBM3E chips to market, but we have successfully passed an important milestone in the chip qualification process with a key customer." He added that Samsung expects to boost sales of HBM3E chips in the last quarter, anticipating it will account for 50 percent of total HBM sales during that time.

Although Kim did not name the customer, industry observers widely believe that it is Nvidia that is driving demand for these advanced AI chips.

Samsung's renewed commitment to increasing AI chip production comes after it reported an operating profit of 9.2 trillion won (approximately $6.66 billion) for the July to September quarter, which was below market expectations of around 10 trillion won.

In the same quarter, Samsung's chip division reported sales of 29.2 trillion won and an operating profit of 3.9 trillion won. The company attributed lower-than-expected earnings to unexpected expenses, including more than 1.2 trillion won allocated for incentives, and adverse effects from currency fluctuations due to a weaker dollar.

In an effort to secure a stronger presence in the HBM market, where SK hynix has a leading share, Samsung mentioned it may partner with TSMC, its foundry competitor, to provide more customized chips that meet specific customer needs. Kim said, "For custom HBM chips, it is vital to understand what our customers require. Therefore, we plan to adapt by choosing foundry partners for base die manufacturing based on customer demands."

Despite being in a distant second position in the foundry market, Samsung is working to improve its yield rates to compete with TSMC. Kim noted that the company might continue as a memory provider while using TSMC for chip packaging to better cater to different customer requirements.

Samsung is also preparing to launch an upgraded version of its HBM3E product to fulfill the needs of major clients for their next-generation GPU projects. Kim stated, "We are currently arranging meetings with our clients to discuss mass production of the enhanced version of HBM3E, which we hope to launch in the first half of next year."

The company plans to decrease the production of older DDR4 and LPDDR4 generation products, which are facing stiff competition, while increasing the output of high-yield products like DDR5 modules for servers with capacities of 128 gigabytes and above, as well as LPDDR5X.

In the smartphone division, Samsung is set to introduce a more affordable range of foldable smartphones along with new form factors. Reports indicate that the company is exploring various foldable and rollable smartphone designs.

Sales in the mobile division reached 2.99 trillion won in the July period, marking a 13 percent increase from the previous quarter and a 3 percent year-on-year growth. However, operating profits in this division fell to 2.8 trillion won from 3.3 trillion won last year, with the third quarter seeing shipments of 57 million smartphones and 7 million tablet devices.

Daniel Araujo, vice president of the mobile division, noted, "In 2025, we anticipate an increase in the prices of key components due to improved specifications, leading to greater product competitiveness. However, we will focus on enhancing profitability by further improving Galaxy AI and boosting sales of our flagship products."

Samsung, AI, Chip, Earnings, Market