Samsung Electronics headquarters in Seoul (Yonhap)

Samsung Electronics said Thursday it will focus on producing high-value chips and is ready to supply the cutting-edge AI chips high in demand after announcing disappointing quarterly earnings.

The company hinted it is making strides to supply its cutting-edge HBM3E chips to Nvidia, which controls some 80 percent of the world's AI chips, and said it aims to mass produce the next HBM4 in the second half of next year.

“There was a delay in commercializing HBM3E chips, but we have made meaningful progress by passing an important stage in the chip qualification test process with our major customer," Kim Jae-june, executive vice president in charge of the memory chip business, said in the earnings call for the July-September period.

"The company expects to expand sales of HBM3E in the fourth quarter this year, and the product is expected to take about 50 percent of the total HBM sales in the last quarter."

Even though the vice president did not reveal the customer, Nvidia is widely seen as the key client of the advanced AI chips.

The renewed push for AI chips comes after Samsung reported an operating profit of 9.2 trillion won ($6.66 billion) in the July-September period, which came far below market expectations, hovering at 10 trillion won.

Samsung's chip division also posted sales of 29.2 trillion won, and an operating profit of 3.9 trillion won in Q3.

Samsung attributed the weak earnings to one-off expenses such as the provision of incentives worth over 1.2 trillion won, and currency effects due to a weak dollar.

The chip giant said it is additionally preparing to introduce an improved line of its HBM3E product, "to meet the demands of major customers for their next-generation GPU projects."

"We are currently arranging time with our clients to discuss mass production of the enhanced version (of HBM3E) to launch in the first half of next year," Kim said.

The company explained its plans to reduce the share of older-generation DDR4 and LPDDR4 products, which face strong competition in the market while expanding the share of high-yield products such as DDR5 modules for servers with a capacity of 128 gigabytes or higher and LPDDR5X.

For 2024, annual capital expenditures are expected to reach around 56.7 trillion won, up 3.56 trillion won when compared to the year earlier. The company said it will keep up investment investment to focus on transitioning to advanced processing and back-end processing to support high-value products such as HBM and DDR5.

"For next year, we are considering a similar level of CAPEX to that of this year, and we plan to focus our investment on facility transition more than building new ones,” Kim said. “We plan to concentrate on boosting our future edge, in building next-generation chip R&D complex, HBM, back-end process and cleanrooms.”

In the foundry sector, the company said it plans to leverage the mass production on the 2-nanometer Gate-All-Around process to win new clients, targeting the fields of artificial intelligence and high-performance computing.

On the smartphone front, the company plans to introduce a more affordable foldable line, and a new form factor phone. The company is reportedly working on multiple fold and rollable smartphones.

The mobile device division achieved sales of 2.99 trillion won during the July period, which is 13 percent higher than the earlier quarter and 3 percent up on year. But the division witnessed the operating profit drop to 2.8 trillion won from last year’s 3.3 trillion won. In Q3, the company shipped 57 million units of smartphones and 7 million units of tablet devices.

"In 2025, we anticipate seeing an increase in the prices of major components due to improved product specifications, as we strengthen product competitiveness,” Daniel Araujo, vice president in charge of the mobile device division said.

“However, we aim to improve profitability by further enhancing Galaxy AI as well as expanding sales centered on flagship products.”

By Jo He-rim (herim@heraldcorp.com)