Samsung Electronics Reports 129.85% Increase in Q4 Operating Profit

Samsung Electronics announced on Friday that its operating profits soared by 129.85 percent year-on-year in the fourth quarter of 2024. However, it experienced a decline from the previous quarter due to challenges in meeting demand for chips used in artificial intelligence (AI) servers.

The company, part of the prominent Samsung Group, is the largest subsidiary within the family-controlled conglomerates that play a significant role in South Korea's economy.

This news comes after the world's leading memory chip manufacturer acknowledged in October that it was encountering a "crisis" and there were concerns about its "fundamental technological competitiveness and the future of the company."

During the period from October to December, Samsung reported an operating profit of 6.5 trillion won (approximately $4.5 billion), a significant increase from 2.82 trillion won in the same quarter of the previous year, according to a regulatory filing.

Sales for the quarter climbed by 11.8 percent to reach 75.78 trillion won, and the company’s net income rose by 22.2 percent to 7.75 trillion won compared to the previous year. This net profit exceeded analysts’ expectations, as reported by Yonhap News Agency.

Despite the substantial year-on-year growth, Samsung's Q4 operating profit was lower than the 9.18 trillion won achieved in the prior quarter. The company attributed this drop to unfavorable market conditions, particularly for IT products, and increasing investments in research and development.

Looking ahead, Samsung commented that overall earnings improvement for the first quarter of 2025 may be limited due to ongoing weaknesses in the semiconductor business.

In the competitive landscape, U.S. technology giant Nvidia has been depending on Samsung's rival, SK Hynix, for high-bandwidth memory (HBM) chips that are essential for its AI graphics processing units (GPUs). This puts Samsung in a difficult position as it struggles to fulfill Nvidia’s requests.

Experts have observed that Samsung's technological leadership in the semiconductor sector has diminished over recent years. Gloria Tsuen, a senior credit officer at Moody's Ratings, pointed out that the rapidly growing demand for AI chips has increased the technical challenges of developing new, customized chips promptly.

Neil Shah from Counterpoint Research noted that Samsung's cautious approach to cost management in response to shifting customer demands has contributed to its difficulties. He remarked that Samsung has lost its initial advantage in the semiconductor AI boom, particularly in supplying HBM for AI servers, and is now facing challenges from competitors such as Micron regarding DRAM for AI smartphones and PCs.

On a more positive note, Bloomberg reported that Samsung has received approval to provide a variant of its fifth-generation HBM chips to Nvidia, according to anonymous sources familiar with the matter.

Amidst this backdrop, a new development has emerged from a Chinese startup called DeepSeek, which recently introduced its R1 chatbot. This platform is said to match the capabilities of leading U.S. AI firms while requiring a considerably smaller investment than what American companies have made.

DeepSeek utilizes H800 chips, which are regarded as less advanced and were allowed for export to China until the end of 2023, to enhance its large learning model. This revelation had a significant impact on tech companies on Monday, as Nvidia’s stock plummeted nearly 17 percent, resulting in an unprecedented loss of approximately $600 billion in market capitalization.

While Tuesday saw a rebound with Nvidia’s shares rising by 8.8 percent, the emergence of DeepSeek has sparked concerns about whether the substantial investments made in AI over the last few years are sustainable.

Shah also emphasized that while Samsung is facing fundamental technological challenges, DeepSeek's position has led to questions regarding the rationale behind current AI investment levels. He suggested that this situation could serve as a "blessing in disguise" for Samsung, providing time to refine its solutions or cut costs as needed.

In the early trading hours in Seoul, Samsung's shares fell by 2.42 percent.

Samsung, profit, AI