Is Samsung's Apology a Sign of Deeper Problems in AI Chip Production?

Samsung Electronics Faces a Crisis of Confidence

Samsung Electronics, the world’s largest memory-chip manufacturer, is grappling with significant challenges, prompting an unexpected and extensive apology.

In a candid acknowledgement of its struggles, Mr. Jun Young-hyun, the newly appointed leader of Samsung’s semiconductor division, has committed to a comprehensive overhaul of the organisation following disappointing financial results.

This stark admission reveals a company that is not just facing ordinary business hurdles but is on the brink of a potential crisis.

What’s Behind the Declining Revenue?

In a recent financial disclosure, Samsung revealed that its revenue and profit figures fell short of projections, raising concerns about its competitiveness in a rapidly evolving market.

The company confessed to delays in delivering a crucial chip variant used with Nvidia processors, essential for training artificial intelligence (AI) models.

This shortfall has allowed its Korean competitor, SK Hynix, to seize control of the high-bandwidth memory (HBM) market, leaving Samsung scrambling to catch up.

Additionally, Samsung has struggled to make headway against Taiwan Semiconductor Manufacturing Co. in the outsourced production of custom-made chips.

Mr. Jun acknowledged the severity of the situation, stating,

“We have caused concerns about our technical competitiveness, with some talking about the crisis facing Samsung.”

This admission highlights the increasing pressure on the tech giant, particularly in light of its historical dominance in the semiconductor sector.

Inventory Adjustments and Increased Competition

The company is facing additional challenges, including warnings of “inventory adjustments” from unspecified customers, which could impact future sales.

Furthermore, Samsung is experiencing intensified competition from legacy Chinese memory-chip manufacturers, complicating its position in the market.

The cumulative effect of these factors contributed to a notable drop in Samsung’s share prices, which fell by as much as 1.8 percent on 8 October 2024.

This decline puts Samsung on track for its lowest closing price since March 2023 and reflects an overall loss of over 20 percent this year.

Cultural Change is Imperative

In light of these challenges, Mr. Jun emphasised the necessity for a thorough review of Samsung’s organisational culture and processes.

His statements echo earlier sentiments regarding the need for fundamental change within one of South Korea’s oldest corporations.

The company has already taken steps in this direction by laying off an undisclosed number of employees in Singapore earlier in October, as part of broader global job cuts impacting thousands.

Currently, Samsung employs approximately 147,000 staff outside South Korea, which accounts for more than half of its total workforce of over 267,800, according to its latest sustainability report.

AI Hardware Boom Leaves Samsung Behind

The recent downturn is particularly painful for Samsung, considering the surge in demand for AI hardware that has bolstered the fortunes of competitors like Hynix and Micron Technology.

In September, Micron reported that demand for AI-related equipment is anticipated to surpass previous revenue forecasts.

As Samsung continues to lag behind SK Hynix in HBM chip production, the urgency to secure certification for its advanced HBM3E chip lineup has never been greater.

“At Samsung, we have a deep and proven history of overcoming difficulties and of turning them into key opportunities,” Mr. Jun asserted, signaling a commitment to long-term strategic thinking over quick fixes. “Rather than relying on short-term solutions, we will focus on reinforcing our long-term competitiveness.”

Looking Ahead: A Financial Snapshot

On 8 October 2024, Samsung announced a preliminary operating profit of approximately 9.1 trillion won (around S$8.8 billion) for the September quarter, which fell short of expectations, partially due to one-time performance bonuses.

Revenue for the same period was reported at 79 trillion won, again not meeting projections.

A more comprehensive financial report, detailing net income and divisional breakdowns, is set to be released on 31 October 2024.

As Samsung navigates these tumultuous waters, the company faces a critical juncture that will define its future trajectory in the semiconductor industry.