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Samsung's profit recovery hits a roadblock: weakening chip demand, AI competition, and geopolitical risks threaten growth

Samsung Electronics is expected to announce a more than four-fold increase in its quarterly profit. This profit is said to be driven by recovering demand in the chip market. However, the tech giant is facing headwinds in fully capitalizing on the growing artificial intelligence (AI) boom, putting a damper on its overall recovery.

Analysts predict Samsung’s operating profit for the quarter ending September 30 will reach 10.33 trillion won ($7.67 billion), up sharply from 2.43 trillion won a year earlier. Yet, this figure is barely a shift from the 10.44 trillion won it reported in the previous quarter, according to data from 29 analysts polled by LSEG SmartEstimate.

The global semiconductor industry has been rebounding after a rough period last year, largely driven by demand for AI servers. However, the recovery for conventional chips used in smartphones and PCs has been slower, according to industry experts. Samsung, a leader in memory chips, is scrambling to catch up with rivals SK Hynix and Micron, who have made faster strides in supplying high-end AI chips to companies like Nvidia.

Samsung’s chip division, which represents a core part of its business, is forecasted to generate an operating profit of 5.5 trillion won—though this is down 15% from the prior quarter. The company has also been affected by provisions set aside for bonuses. Its slower response to the lucrative AI chip market and larger exposure to traditional mobile chips have made Samsung more susceptible to geopolitical risks and softer demand, analysts say.

“Samsung is more likely to lose the title of number 1 DRAM vendor in case of a softer commodity DRAM market,” noted Daniel Kim, an analyst at Macquarie Equity Research, referring to dynamic random access memory chips, which are key in smartphones and computers.

Samsung also faces increased competition from Chinese rivals, particularly in its mobile division. Its high-end foldable phones have struggled to meet expectations, further weighing on its performance. In contrast, rivals like SK Hynix and Micron have benefited from booming demand in the AI chip market. Micron, for instance, reported its highest quarterly revenue over a decade, highlighting its strong position in the AI sector.

Samsung will release its preliminary third-quarter earnings on Tuesday, with full figures expected later this month. All eyes will be on how the company navigates the challenges of a rapidly changing tech landscape.