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(Bloomberg) -- Samsung Electronics Co.’s pivotal chip division reported a smaller-than-expected profit as the company fights to close the gap on archrival SK Hynix Inc. in the artificial intelligence arena.
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Samsung is ratcheting up its research and operating costs, with executives saying the spending on memory would stay at a similarly elevated level as last year. Total capital expenditures came to 53.6 trillion won ($37 billion) in 2024.
That push resulted in getting long-delayed approval for Samsung’s supply of 8-layer HBM3E — a less advanced variety of the high-bandwidth memory that SK Hynix supplies — from Nvidia Corp. for use with AI processors tailored for the Chinese market.
But the effort, along with exposure to legacy DRAM, is weighing on South Korea’s largest company. Samsung’s semiconductor unit reported operating profit of 2.9 trillion won for the December quarter, missing analysts’ average projections. It also forecast limited earnings growth in the current quarter. The company’s net income came to a bigger-than-expected 7.58 trillion won, thanks to a boost from its network business.
The stock price of Samsung fell 2.4% on Friday, the first trading day in Seoul after the Lunar New Year holiday. SK Hynix shares dropped 9.9%, reflecting in part concern that DeepSeek’s low-cost AI would upend the entire premise of big spending on datacenters and powerful chips.
Samsung executives said on Friday the company expanded its HBM3E supply to multiple providers of graphic processing units and datacenter customers in the fourth quarter. Still, US export restrictions on AI chips will likely weigh on its first-quarter earnings before overall memory chip demand starts recovering in the second quarter.
“We expect a temporary constraint on HBM sales in the first quarter,” partly due to US curbs as well as efforts to launch an improved version of its HBM3E chips, Kim Jaejune, executive vice president of Samsung’s memory business, said during an earnings call. “There’s been a shift among major customers who are opting to wait for enhanced HBM3E products, which may potentially result in a temporary gap in HBM demand.”
At CES earlier this month, Nvidia Chief Executive officer Jensen Huang said Samsung will have to engineer a new design. “But they can do it. They are working very fast. They’re very committed to do it.”