Samsung Electronics (USOTC:SSNHZ) shares declined on Thursday despite a substantial increase in quarterly semiconductor profit, as investors assessed the company's outlook for artificial intelligence memory chips and the absence of new shareholder-return measures.
The South Korean technology group reported operating profit of 107.4 trillion won ($80 billion) for the July-to-September quarter, compared with 12.2 trillion won a year earlier. Semiconductor operating profit reached 106.5 trillion won, approximately 15 times the prior-year level.
However, the chip division's result was slightly below analysts' expectations, while Samsung's guidance on memory shortages and shareholder distributions differed from announcements made by rival SK Hynix (NASDAQ:SKHY).
Samsung shares initially advanced before reversing direction and falling as much as 6.2% during morning trading. SK Hynix shares rose 0.7%.
Why Did Samsung Shares Decline After Its Earnings Announcement?
Samsung's share price decline followed quarterly results that showed increased semiconductor profitability but provided limited changes to the company's previous outlook.
Investors were comparing Samsung's announcements with those of SK Hynix, which had reported earnings above expectations on Wednesday and outlined plans to return approximately $75 billion to shareholders during the year.
SK Hynix also provided longer-term guidance on memory chip supply constraints.
Lee Min-hee, an analyst at BNK Investment & Securities, commented on the difference between the companies' announcements.
"SK Hynix did quite a lot more than expected yesterday … it went beyond market expectations, but Samsung Electronics hasn't really changed anything from the guidance it gave before," Lee said.
Samsung shares opened higher but subsequently fell as much as 6.2%, while SK Hynix recorded a 0.7% increase.
How Much Did Samsung's Semiconductor Profit Increase?
Samsung reported group operating profit of 107.4 trillion won ($80 billion) for the third quarter, compared with 12.2 trillion won in the corresponding period a year earlier.
The result was consistent with the company's previous estimate.
Operating profit from its semiconductor division reached 106.5 trillion won, accounting for nearly all of the group's total operating profit.
The chip division's profit increased approximately fifteenfold from the previous year.
However, the figure was slightly below the 107.3 trillion won forecast by analysts surveyed by LSEG.
The results reflected increased demand for memory chips used in artificial intelligence infrastructure, alongside continuing differences in profitability across Samsung's business divisions.
How Long Does Samsung Expect the AI Memory Chip Shortage to Continue?
Samsung indicated that memory chip supply conditions could remain constrained through 2028.
The company said its high-bandwidth memory (HBM) supply for next year had already been sold out, with major customers requesting additional quantities of chips used in artificial intelligence data centres.
Samsung also expects investment in AI infrastructure to increase during 2027.
In a statement, the company said:
"In 2027, the (memory) business expects AI infrastructure capital expenditure to reach a historic level as the AI ecosystem expands."
It added:
"Increasing AI-driven demand will far exceed the industry supply in comparison with 2026."
Samsung indicated that expanding semiconductor production capacity would take time because of the construction requirements associated with new fabrication facilities.
How Does Samsung's Supply Outlook Compare With SK Hynix?
SK Hynix said on Wednesday that its dynamic random-access memory (DRAM) and HBM products were sold out through 2029.
The company also forecast that memory chip shortages would persist into 2030.
Samsung, by comparison, indicated that its HBM supply for next year was fully committed and that broader memory supply conditions could remain constrained through 2028.
The difference in the forecast periods attracted attention from analysts.
Jing Jie Yu, an analyst at Morningstar, said:
"Samsung's decline was likely attributable to its outlook on how long the memory shortage would last, which came across as marginally less bullish than SK Hynix's commentary yesterday."
The companies' respective projections provided different timeframes for expected supply constraints in the memory semiconductor market.
Why Are Investors Waiting Until January for Samsung's Shareholder-Return Policy?
Samsung had previously indicated that shareholder returns for the year would total between 90 trillion and 110 trillion won.
That amount included 30 trillion won in third-quarter dividends.
However, the company did not announce additional shareholder-return measures alongside its latest quarterly results.
Instead, Samsung said it would finalise its next shareholder-return policy in January.
Sanjeev Rana, senior analyst at CLSA, commented on the timing of the announcement.
"The market appeared to expect an additional buyback and/or dividend announcement, but the company deferred the decision until late January, potentially disappointing near-term expectations," Rana said.
The decision left investors awaiting further information about potential share repurchases and dividend distributions.
How Much Is Samsung Investing in Semiconductor Production?
Samsung increased capital expenditure for its semiconductor division by 62% to 76.8 trillion won this year.
The company also indicated that chip-related investment would rise further next year.
The spending is intended to expand manufacturing capacity as demand for memory and advanced semiconductor products increases.
However, semiconductor fabrication plants require substantial construction and equipment installation before additional production capacity becomes available.
Samsung therefore expects supply constraints to continue despite higher capital expenditure.
The company's investment plans come as semiconductor manufacturers assess demand from artificial intelligence data centres and other computing applications.
Why Are Memory Chip Manufacturers Signing More Long-Term Contracts?
Samsung reported that the pace of memory chip price increases was slowing as manufacturers entered into longer-term supply agreements.
Higher memory prices were also affecting demand from smartphone and personal computer manufacturers.
To secure future sales, Samsung has signed long-term supply contracts with 10 major customers and is negotiating similar agreements with another 10.
The company aims for long-term agreements to cover approximately 60% to 70% of its total production capacity by 2030.
Samsung is also expanding its customer base for these arrangements beyond AI infrastructure companies and hyperscale cloud operators.
The additional target markets include mobile devices and automotive applications.
The agreements are intended to provide greater visibility into future production requirements and customer demand.
What Is Happening in Samsung's Semiconductor Foundry Business?
Samsung's foundry operations remained loss-making, according to analysts, affecting overall semiconductor division profitability.
The foundry business manufactures chips designed by other companies.
Samsung nevertheless reported an improvement in foundry revenue, supported by sales of logic dies used in HBM products and new orders for advanced semiconductor manufacturing.
The company said it had secured orders for 2-nanometre chips from hyperscale computing companies and other artificial intelligence customers.
These developments provided additional information about demand for Samsung's advanced manufacturing services, although the foundry division had not returned to profitability.
What Are Samsung's Plans for Its Texas Semiconductor Plant?
Samsung plans to begin mass production at its Taylor, Texas, semiconductor facility next year.
The plant is expected to manufacture chips for Tesla.
The company is also considering construction of an additional fabrication facility to address demand for advanced 2-nanometre semiconductor technology.
The potential expansion would form part of Samsung's efforts to increase its manufacturing capacity for advanced chips.
No final decision or construction timetable for the additional facility was specified in the announcement.
Why Did Samsung's Mobile Business Record a Loss?
Samsung's mobile division reported a loss of 800 billion won during the quarter.
The company attributed pressure on mobile profitability to higher memory chip costs.
Increased component prices reduced margins in the smartphone business, illustrating how rising semiconductor prices can affect different parts of Samsung's operations.
While the semiconductor division benefited from increased demand and pricing for memory products, the mobile business faced higher input costs.
The results demonstrated the different financial effects of memory chip market conditions across Samsung's business segments.
How Are AI Infrastructure Spending and Competition Affecting the Chip Market?
Demand for artificial intelligence semiconductors remains a central factor in the industry's outlook.
However, investors have also been assessing the financing requirements associated with expanding AI data centres and increased competition from Chinese semiconductor manufacturers.
Alphabet's latest earnings announcement added to attention on infrastructure spending after the Google parent reported a substantial increase in cash outflows associated with AI investment.
These developments have contributed to scrutiny of semiconductor demand forecasts and the financial capacity of major technology customers to sustain investment programmes.
For Samsung, the outlook includes fully committed HBM supply for next year, additional long-term customer agreements and planned expansion of manufacturing capacity.
What Could Influence Samsung Electronics Shares Next?
Samsung's shareholder-return policy announcement in January will provide further information about planned dividends and potential share repurchases.
Investors may also monitor the company's memory chip supply forecasts, progress on long-term contracts and additional capital expenditure.
The financial performance of Samsung's foundry and mobile divisions will remain relevant to group profitability.
Developments in AI infrastructure investment, memory pricing and advanced semiconductor manufacturing are additional factors affecting the company's business outlook.
More About Samsung Electronics
Samsung Electronics is a South Korean technology company operating across semiconductors, mobile devices, consumer electronics and advanced manufacturing services.
Its semiconductor operations include DRAM, high-bandwidth memory, NAND flash memory and contract chip manufacturing.
The company supplies components and products used in smartphones, personal computers, cloud infrastructure, automotive systems and artificial intelligence applications.
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