Volkswacht Bodensee - Samsung operating profit hit by R&D spending, fight to meet chip demand

The news comes as industry leaders try to assess the outlook for the sector after Chinese startup DeepSeek unveiled a groundbreaking chatbot that performed as well as artificial intelligence pacesetters -- apparently for a fraction of the cost.

The world's largest memory-chip maker had already acknowledged in October that it was facing a "crisis", and acknowledged questions had arisen about its "fundamental technological competitiveness and the future of the company".

It said operating profit fell to 6.5 trillion won ($4.5 billion) in October-December, from 9.18 trillion won in the previous three months. However, it was up 130 percent on-year.

Sales rose 11.8 percent to 75.78 trillion won and net profit rose 22.2 percent to 7.75 trillion won, topping forecasts according to Yonhap News Agency.

The firm said the fourth-quarter fall-off was down to "soft market conditions especially for IT products, and an increase in expenditures including R&D", as well as the "initial ramp-up costs to secure production capacity for cutting-edge nodes".

It warned that in the first three months of 2025 "overall earnings improvement may be limited due to weakness in the semiconductors business".

- Struggling -

US titan Nvidia, whose semiconductors power the AI industry, has been relying on SK hynix as its main supplier of high-bandwidth memory (HBM) chips for its AI graphics processing units (GPU).

But Samsung, the world's largest memory chip maker, has been struggling to meet the US firm's requirements.

Gloria Tsuen, a Moody's Ratings vice president and senior credit officer, told AFP that its technology leadership "in the semiconductor market has been eroded over the last few years".

"The rapidly increasing demand for AI chips also heightens the technological difficulty in developing new, custom-made chips for customers in a timely manner," she added.

Neil Shah of Counterpoint Research said Samsung's "conservative" moves to focus on costs relative to more challenging customer demands had been "key factors for the headwinds".

Still, Bloomberg reported Friday that Samsung had obtained approval to supply a "version of its fifth-generation high-bandwidth memory (HBM) chips" to Nvidia, citing people familiar with the matter. Samsung declined to comment when asked by AFP about the report.

The earnings figures come as the tech world is shaken by news of DeepSeek new R1 chatbot, which sparked at rout in tech titans -- Nvidia dived 17 percent Monday -- and raised questions about the hundreds of billions of dollars invested in AI in recent years.

The Chinese startup has said it used less-advanced H800 chips -- permitted for export to China until late 2023 -- to power its large learning model.

Worries about the impact of DeepSeek battered stocks in Seoul as the market reopened after an extended break Friday.

Samsung fell more than two percent, while SK hynix plunged almost 12 percent at one point.

Jaejune Kim, executive vice president of Samsung's memory business, said in an earnings call that the company was "monitoring industry trends considering various scenarios", as it also supplies HBM chips used in GPUs to various clients.

"While it is premature to make judgements based on the currently limited information, we anticipate that long-term opportunities and short-term risks will coexist in the market," he said.

He added that Samsung was determined to "actively respond to the rapidly evolving AI market".

While Samsung faces fundamental technology headwinds, DeepSeek's claims have "challenged the fundamental economics and investments for ongoing AI waves", said Counterpoint's Shah.

"This 'frugal innovation' could potentially slow down or stretch the hundreds of billions of dollars in AI infrastructure investments over the years," he said.

"So, this could be a 'blessing in disguise' for Samsung, allowing them to take the time needed to perfect their solution or to lower costs," he added.

L.Wyss--VB