Samsung Faces Profit Slump Amid Rising Costs and AI Surge
Samsung Electronics, the world’s leading manufacturer of memory chips and the second-largest player in the smartphone market, has reported mixed performance for the fourth quarter. While year-on-year growth remains strong, the company is grappling with a sharp operating profit slump and rising challenges from advanced AI technologies.
Here’s a closer look at Samsung’s financial performance, the hurdles it faces, and its strategic pivot to maintain technological and market leadership.
Strong Year-on-Year Growth Amid Quarter-on-Quarter Struggles
Samsung’s fourth-quarter revenue reached 75.8 trillion Korean won (£52.2 billion), narrowly beating its guidance of 75 trillion won. This reflects a 12% rise compared with the same quarter last year. The company’s operating profit also soared by 130% year-on-year, totalling 6.5 trillion won.
However, quarter-on-quarter results have highlighted underlying challenges. Operating profit fell nearly 30%, and revenue dropped over 4%. This decline was attributed to rising R&D expenses, increased production costs, and weak market demand, particularly in Samsung’s chips and mobile segments.
For 2023, Samsung recorded an annual revenue of 300.9 trillion won (£207 billion) and a profit of 32.7 trillion won, the second-highest annual revenue in the company’s history.
Chip Business Posting Pressure on Performance
The semiconductor market, a key revenue driver for Samsung, has been under immense pressure. Despite achieving record-high revenue of 30.1 trillion won in its memory business, operating profit for the segment slid by more than 25% quarter-on-quarter to 2.9 trillion won.
This decline is largely driven by increased R&D spending as Samsung strives to maintain its competitive edge and initial costs associated with advanced manufacturing technologies.
One pivotal factor is the company’s struggle in the high-bandwidth memory (HBM) market, where its main competitor, SK Hynix, has taken a substantial lead in providing cutting-edge solutions tailored to growing AI applications. Meanwhile, US-based Micron Technology is making strides of its own.
Eric Ross, an analyst at Cascend Securities, highlighted, “Samsung is in the wrong pieces of the DRAM market right now because they missed the high-bandwidth piece. They really need to focus on catching up.”
Faced with the booming demand for HBM in AI-powered systems, Samsung has committed to aligning its chip production with premium product demands while phasing out lower-margin legacy items.
The Growing Influence of AI Technologies
Artificial intelligence applications—including those requiring high-performance computing—continue to shape market dynamics. Samsung is doubling down on R&D to remain competitive. A company spokesperson said, “We are increasing investments to secure future technology leadership and addressing initial costs for production capacity expansion.”
AI remains one of Samsung’s key areas of focus. While South Korean tech companies, including Samsung, face pressure from China’s innovative DeepSeek AI model, Samsung has outlined plans to create AI-driven smartphones and expand device capabilities through machine learning.
For 2025, Samsung has committed to enhancing its technological and product advantages, particularly in meeting the rising demand for AI-focused high-value-added products.
Smartphone Market Shifts
Samsung’s mobile experience division experienced a quarter-on-quarter performance dip due to waning momentum from new flagship launches. Consolidated revenue for the segment totalled 25.8 trillion won, with an operating profit of 2.1 trillion won, reflecting lower customer demand.
However, the broader performance of Samsung’s flagship smartphones, including the Galaxy S24 series with advanced AI capabilities, demonstrated strong growth over the year. Tablets and wearable devices also saw an uptick in value and shipments, signalling premium product success.
Looking ahead, Samsung plans to drive growth with the newly launched Galaxy S25 series, further cementing its foothold in the premium smartphone market. According to Nabila Popal, Senior Director at IDC, Samsung’s focus on value-added flagship devices has helped it close the market share gap with Apple.
“One thing Samsung has done well is its deliberate strategy to elevate the premium segment of its product line. They are doing their best to increase value perception among customers,” Popal pointed out.
Strategic Adjustments in the Face of AI Surge
The increasing prevalence of AI is reshaping competition across industries, particularly in technology. Leading high-bandwidth memory providers such as SK Hynix and Micron have stolen a march on Samsung in the AI memory products sector. Analysts suggest the company will need to significantly increase its investments into HBM research and production to remain competitive.
Further exacerbating Samsung’s challenges, DeepSeek’s rise as a disruptive AI model in Asia presents additional headwinds for an already troubled semiconductor sector. To counter these challenges, Samsung has stated its intention to stay agile and pivot towards markets showing demand recovery potential by Q2 2025.
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