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Samsung Electthe ronics' third-quarter profit falls short of expectations amid intensifying competition in AI Chip Market from Nvidia and other chip giants

Samsung Electronics has issued a rare apology after warning that its third-quarter profit would fall below market expectations. The company, which has long dominated the global memory chip market, is facing growing competition as it struggles to supply high-end AI chips to Nvidia, a key player in the booming artificial intelligence market.

Samsung estimates an operating profit of 9.1 trillion won ($6.78 billion) for the quarter ending September 30, falling short of the 10.3 trillion won forecasted by analysts. The company’s profits for the same period last year were 2.43 trillion won, while in the previous quarter, they reached 10.44 trillion won.

“The earnings are a shock compared to what many analysts expected initially,” said Lee Min-hee, an analyst at BNK Investment & Securities. “I don’t see its earnings improving in the current quarter,” he added, highlighting Samsung’s lag. Samsung’s heavy reliance on traditional chips and its high exposure to the Chinese market are additional challenges.

High-end AI chips are driving recovery in the semiconductor industry following last year’s post-pandemic slump. However, Samsung has been slow to meet the surging demand for these AI-driven chips, particularly those used in servers.

SK Hynix, another South Korean chipmaker, has been quicker to supply Nvidia with HBM chips, further widening the gap between the two companies in this critical area.

“We have caused concerns about our technological competitiveness, with some talking about the crisis facing Samsung,” admitted Young Hyun Jun, Vice Chairman of Samsung's Device Solutions Division. He added, “These are testing times,” while expressing confidence in the company's ability to turn the situation around. Jun also pledged to focus on enhancing Samsung’s long-term technological competitiveness.

Samsung’s struggles in the AI chip market have been compounded by delays in its supply of HBM3E chips to a major customer, which the company did not name. In a statement, Samsung confirmed the delay, saying that the start of sales for the advanced chips was “delayed relative to our expectations.” The company had previously announced that mass production of these chips would begin between July and September.

The company’s memory chip business was also hit by increased competition from Chinese chipmakers, who ramped up the supply of conventional chips. This contributed to a decline in semiconductor earnings, which were further affected by mobile customers adjusting inventories.

Samsung’s contract chip manufacturing business also faces challenges. Analysts believe that the business, which designs and produces custom chips for other companies, continues to struggle against industry leader TSMC, which counts Nvidia and Apple among its key customers.

Despite the difficulties in its semiconductor division, Samsung reported improvements in other areas. Earnings in its mobile division rose due to strong sales of flagship smartphones, while its display unit benefited from new product launches by major customers, including Apple.

Samsung's share price has dropped more than 20% this year and fell another 1.3% after the earnings warning, underperforming the benchmark KOSPI index, which fell 0.4%.

Samsung will release detailed earnings results on October 31. In the meantime, the company faces pressure to regain its footing in the AI chip race and adapt to an increasingly competitive global market.