Missing the AI wave! Samsung's Q3 operating profit fell short of expectations, with a sharp decline in chip division profits, but is expected to begin supplying the long-awaited HBM3E to NVIDIA.On the morning of October 31, technology giant Samsung Electronics released its Q3 performance report for the period ending September 2024.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9c68990f-a1fd-4ef7-8738-af311efc3544.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9c68990f-a1fd-4ef7-8738-af311efc3544.png"/>1) Key Financial Data:<blockquote>Revenue: Samsung Electronics' Q3 sales amounted to 79.1 trillion won (approximately USD 57.3 billion), compared to 67.4 trillion won in the same period last year, a quarter-on-quarter increase of 7%.Profit: Samsung Electronics' Q3 gross profit was 30 trillion won, up from 20.79 trillion won in the same period last year. Net profit surged 72.9% year-on-year to 10.1 trillion won. Operating profit fell from 10.44 trillion won in the previous quarter to 9.18 trillion won, although it was higher than the company's profit guidance released earlier this month, it fell short of the market expectation of 9.14 trillion won.</blockquote>2) Business Revenue Data:<blockquote>Mobile and Network Division (MX/NW): Benefiting from the launch of new smartphones, tablets, and wearable products, the combined revenue of the mobile business (MX) and network business was 30.52 trillion won, a year-on-year increase of 2%, with an operating profit of 2.82 trillion won.Chip Division (DS): The DS division's combined revenue in Q3 grew 112% year-on-year to 29.27 trillion won, falling short of the market expectation of 30.53 trillion won. Operating profit was 3.86 trillion won, compared to -3.75 trillion won in the same period last year.Display and Digital Appliances Business (SDC): The SDC division's combined revenue in Q3 was 8 trillion won, a year-on-year decline of 3%, with an operating profit of 1.51 trillion won.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/60b32e09-b103-4289-ba45-d651fcd2b0a3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/60b32e09-b103-4289-ba45-d651fcd2b0a3.png"/></blockquote><h2>The Cost of Missing the AI Wave? Q3 Chip Profits Plummet</h2>It is noteworthy that the operating profit of the chip division in Q3 plummeted by over 40% compared to the previous quarter.The company stated in the report that although demand for AI and traditional server products remains strong, &#34;inventory adjustments have negatively impacted mobile demand,&#34; and it was also affected by one-time costs (such as employee incentives) and a weak dollar.In terms of performance outlook, Samsung Electronics indicated that demand for mobile and PC products may continue to weaken in Q4, while AI demand will remain strong. The company holds a &#34;cautious&#34; outlook for the SDC business and expects sales in the DX business to decline quarter-on-quarter.In stark contrast to Samsung Electronics' dismal Q3 report, [TSMC](https://wallstreetcn.com/articles/3730611?Both Taiwan Semiconductor Manufacturing Company (TSMC) and SK Hynix achieved record highs in their third-quarter performance.Yuanta Securities analyst Baik Gil-hyun stated:<blockquote>“Samsung Electronics has not effectively commercialized HBM like its competitors, so its third-quarter performance and fourth-quarter outlook have not met market expectations.”“It is expected that it will take some time for the business to achieve the expected results.”</blockquote>As previously mentioned by Wallstreetcn, with Samsung Electronics' increasingly evident lag in the AI chip sector, its stock price has fallen 32% from the annual high on July 9, resulting in a market value evaporation of $122 billion, surpassing any other chip manufacturer globally.Earlier, due to third-quarter profit guidance falling short of expectations, Samsung Electronics' leadership issued a rare apology statement.<h2>Expected to Supply HBM3E to NVIDIA, Mass Production to Begin Soon</h2>While the performance was below expectations, Samsung Electronics released another positive signal.In the earnings call, Samsung Electronics stated, “We have completed an important phase,” and are capable of supplying the most advanced HBM3E chips to its major customers. Although not explicitly named, various descriptions of the “major customer” point towards NVIDIA.Samsung indicated that it will begin to expand sales in the last three months of this year, expecting the proportion of HBM3E in its total HBM revenue to reach 50% by the fourth quarter, with the current third-quarter proportion slightly above 10%.Samsung Electronics' stock rose over 3.5% today, with the increase narrowing to 0.68%.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/dbde0ab9-28dc-4852-b29e-5f5109cbbfbb.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/dbde0ab9-28dc-4852-b29e-5f5109cbbfbb.png"/>

SSNGY

Due to the slow recovery in demand for computers and mobile devices, Samsung's Q3 chip operating profit shrank by 40% quarter-on-quarter to 3.86 trillion won, and demand is expected to remain weak in the fourth quarter; the company also stated that it has the capability to supply HBM3E to its "major customers" and will begin to expand sales in the last three months of this year

- Samsung Electronics reported Q3 2024 revenue of 79.1 trillion won, a 7% increase year-on-year, but operating profit fell to 9.18 trillion won, below market expectations.  
- The chip division's operating profit plummeted over 40% from the previous quarter, impacted by inventory adjustments and one-time costs, despite strong demand for AI products.  
- Samsung announced plans to begin supplying HBM3E chips to a major client, likely Nvidia, with expectations that HBM3E will account for 50% of total HBM revenue by Q4.

Wallstreetcn

Samsung Electronics 

Missed the AI wave! Samsung's Q3 operating profit fell short of expectations, with chip profits plummeting by 40%, suggesting a potential start to supplying HBM3E to NVIDIA in the near future