Samsung doubles down on AI with $37B but investors see red

Samsung Electronics reported a significant decline in its operating profit for the fourth quarter, following increased R&D spending and weakness in its semiconductor business. The South Korean company posted fourth-quarter revenue of 75.8 trillion Korean won ($52.2 billion), exceeding its own guidance but falling short of expectations for operating profit, which reached KRW 6.5 trillion.

Despite an annual revenue increase of about 12% and a remarkable 130% growth in operating profit year-on-year, the quarterly results reflected a nearly 30% drop in operating profit and over a 4% decrease in revenue compared to the previous quarter. Samsung stated that while quarterly figures declined, annual revenue for 2023 was KRW 258.94 trillion, with an operating profit of KRW 6.57 trillion.

Samsung’s semiconductor unit indicated an operating profit of KRW 2.9 trillion for the fourth quarter, a decline of over 25% from the previous quarter, marking its annual figures lower than those of SK Hynix. Although the memory business achieved record-high revenue of 30.1 trillion won driven by demand for advanced memory products, operating profits were impacted by increased R&D expenditures and ramp-up costs related to the production of cutting-edge technologies.

In the smartphone segment, Samsung’s mobile experience and networks businesses saw a decrease in sales and profit from the previous quarter, attributed to the diminishing effects of recent flagship launches. The segment recorded consolidated revenue of KRW 25.8 trillion and operating profit of KRW 2.1 trillion. Nevertheless, Samsung noted robust growth in flagship sales on an annual basis, particularly driven by the Galaxy S24 series.

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Looking ahead, Samsung plans to concentrate on AI smartphones and other premium devices while indicating potential earnings limitations in the current quarter due to semiconductor market weaknesses. The company is set to introduce new flagship models, specifically its Galaxy S25 series, to stimulate sales growth.

Samsung’s R&D efforts are rising, with capital expenditures reaching 53.6 trillion won ($37 billion) in 2024. The company has sought to expand its supply of high-bandwidth memory (HBM) products, competing closely with SK Hynix, which has gained a significant lead in this market segment. Samsung executives express confidence in overcoming challenges and advancing its HBM capabilities in response to emerging AI demands.

In stock market activity, Samsung shares fell 2.2% following the earnings announcement, while SK Hynix’s stock experienced a sharper decline of over 11%. Investors continue to show concern regarding Samsung’s position in the high-bandwidth memory market amid increasing competition from both SK Hynix and Micron Technology, as well as new pressures from advancements in AI technology.

In November, Samsung announced a plan for a stock buyback worth about 10 trillion won, reporting in its earnings call that it is in the process of canceling around 3 trillion won of shares while exploring timing for the remaining buyback amount.

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Featured image credit: Samsung