HBM Slump and Nvidia Delivery Delays... SK Hynix Close to Overtaking

Semiconductor Slump Drives 60% of Earnings
Samsung DS Division Operating Profit Forecasted at 5.3 Trillion Won
Possibility of Losing No.1 Position in Memory Market

The provisional results for Samsung Electronics' third quarter this year slightly missed market expectations, largely due to the semiconductor sector. Semiconductors drive about 60% of Samsung Electronics' performance, and the decline in DRAM prices along with sluggish high-bandwidth memory (HBM) significantly impacted the results. There are concerns that the semiconductor operating profit in the detailed results to be announced on the 31st could be surpassed by competitor SK Hynix.

On that day, Samsung Electronics provisionally announced an operating profit of 9.1 trillion KRW across all divisions. Based on this figure and recently disclosed industry conditions and information, the Device Solutions (DS) division, which handles the semiconductor business, is expected to generate an operating profit around 5.3 trillion KRW. Considering the one-time costs incurred by the company in this third quarter, there is an assessment that the situation has not reached the worst crisis. However, compared to the explosive growth in operating profit of 6.567 trillion KRW in the second quarter, driven by semiconductor market recovery and expanding AI memory demand, the third quarter saw a decrease of about 1 trillion KRW in operating profit, reinforcing a sober analysis that this is not a strong performance.

If market forecasts are correct, Samsung Electronics is likely to lose its top spot in the memory market as its operating profit is overtaken by competitor SK Hynix. Unlike Samsung Electronics, SK Hynix is expected to achieve its highest performance in the third quarter this year. The market anticipates SK Hynix's third-quarter revenue and operating profit to be 18.1262 trillion KRW and 6.7679 trillion KRW, respectively. Thanks to the strong performance of high-bandwidth memory (HBM), SK Hynix's operating profit is expected to exceed Samsung Electronics DS division's by about 1.4 trillion KRW.

In the third quarter, SK Hynix restructured DRAM sales focusing on HBM, increased shipments, and solidified cooperation with customers, thereby strengthening its leading position in the HBM market. In contrast, Samsung Electronics has not been able to create a definitive turning point in the HBM market. The Nvidia quality test for the fifth-generation HBM3E, which was expected to be finalized within the third quarter of this year, is still ongoing. There are rumors that around June to July, Jensen Huang, CEO of Nvidia, met with Samsung Electronics executives in the U.S. and expressed doubts about Samsung Electronics' technological capabilities and engineers' skills, voicing dissatisfaction with the HBM3E product. Although the authenticity of these rumors has not been confirmed, their emergence reflects Samsung Electronics' unfavorable current situation. Nvidia has not finalized the supply of Samsung Electronics' HBM3E and is only using Samsung's HBM3 for low-performance products exported to China.

As the competitive landscape of HBM is likely to be overturned, Samsung Electronics' top position in DRAM is also under threat. According to market research firm TrendForce, Samsung Electronics maintained its first place in total DRAM sales in the second quarter of this year with $9.82 billion, a 22% increase from the previous quarter ($8.05 billion), but the gap with second-place SK Hynix narrowed from 12.8 percentage points in the first quarter to 8.4 percentage points in the second quarter.

For Samsung Electronics, unless it presents a firm plan through the confirmed results to be announced at the end of this month, the crisis is expected to intensify. Jeon Young-hyun, Vice Chairman and head of the DS division leading the semiconductor business, stated separately on this day, "Rather than short-term solutions, we will secure fundamental competitiveness," adding, "We will rearm ourselves with a challenging spirit aiming for higher goals, not a defensive mindset to merely protect what we have." A major overhaul and innovation in the semiconductor division are expected to follow soon.