Samsung struggles as R&D spending drives profit down sharply

In South Korea, Samsung Electronics experienced a substantial drop in its operating profit in the fourth quarter, which fell by almost a third. The company attributed this decline to heightened expenditures on research and development as it tried to meet the increasing demand for chips, especially those used in artificial intelligence applications. Reported figures showed a decrease in operating profit to 6.5 trillion won from 9.18 trillion won in the previous quarter, despite a notable increase of 130 percent year-on-year. Revenue also rose, reaching 75.78 trillion won, covering sales of their flagship products such as the Galaxy series. However, Samsung's memory chip division, critical to its operations, reported an operating profit drop of over 25% when compared to the preceding quarter, even as it achieved record-high revenues in the fourth quarter driven by demand for advanced memory solutions. The strong demand highlights a paradox within the semiconductor industry – while Samsung saw revenue growth, its manufacturing capabilities and strategic positioning are being challenged by competitors, especially in high bandwidth memory which SK Hynix has been dominating. As such, analysts pointed out that Samsung needs to significantly improve its technological competitiveness, as questions about the company's long-term viability persist. The artificial intelligence chip market is rapidly evolving, putting pressure on established businesses like Samsung. The company is facing a crisis in this segment, especially since Nvidia has turned to SK Hynix for high-bandwidth memory chips needed for its advanced graphics processing units. This situation raises concerns about whether Samsung can secure its standing and technological leadership without new investments or breakthroughs in memory technology. While it is positioned as a leader in memory chip manufacturing, its competitors are gaining the upper hand in lucrative segments of the market. In response to the challenges, Samsung plans to pivot and chase new growth opportunities through innovative flagship devices, emphasizing artificial intelligence features. Looking forward, while immediate earnings may face limitations, particularly in its semiconductor business, Samsung acknowledges the potential for growth associated with high-value products and anticipates an overall recovery in the memory market by mid-2025. This strategic shift aims to solidify its position, ensuring that the company remains a key player in the highly competitive tech landscape, despite the current setbacks.