Samsung Electronics reported a third-quarter operating profit of approximately 9.1 trillion won ($6.7 billion), marking a 13% decrease from the second quarter and falling 16% short of the average forecast by securities firms. The decline is largely due to a drop in operating profit in the memory semiconductor sector, the company’s key strength, from $4.8 billion in the second quarter to the $3.7 billion range in the third.
In contrast, SK Hynix, which ranks second in the global memory market, is projected to exceed $4.4 billion in operating profit for the third quarter, potentially displacing Samsung as the top player in semiconductor profitability for the first time. This shift is a result of SK Hynix seizing the high-value high-bandwidth memory (HBM) market, leaving Samsung behind after its strategic focus missed the growing artificial intelligence (AI) semiconductor ecosystem led by NVIDIA, a trend that began with the rise of ChatGPT two years ago.
Samsung’s failure to anticipate the shift from general-purpose DRAM to customized system semiconductors for individual clients, coupled with its late entry into HBM development, has been costly.
Despite announcing plans to begin mass production of HBM3E for NVIDIA in the third quarter, Samsung has yet to pass NVIDIA’s quality tests, let alone begin production. Meanwhile, its ambitious goal to become the leader in system semiconductors by 2030—backed by a $127.5 billion investment plan unveiled five years ago—has proven hollow. In 2019, Samsung’s market share gap with Taiwan’s TSMC stood at 50% to 20%, but this year, the gap has widened to 62% to 12%.
Global investment banks have issued grim forecasts for Samsung’s future, and foreign investors have sold off more than $6.7 billion in Samsung shares, prompting criticism that such pessimism was excessive.
In a rare move, Samsung’s semiconductor division head issued an apology, admitting to concerns over the company’s future competitiveness, a striking contrast for a firm once known for its “extreme dominance.” The question now is: where has the Samsung we once knew gone?
Reflecting on Samsung’s recent struggles, one cannot help but wonder where the company’s once-keen strategic judgment, its unrivaled speed in outpacing competitors, and its relentless pursuit of being the best have gone.
Samsung, which developed the world’s first 256M DRAM in 1994 and consistently led with “world first” innovations, has lost its edge in innovation since 2020, as competitors now claim those milestones. While the top management undoubtedly bears much of the responsibility, the company’s internal culture has also become lethargic to the point where it is mockingly referred to as “Sammo-won” (a combination of Samsung and the word for bureaucrats).
It is even said that when managers attempt to motivate their teams with calls for harder work, the employees respond sarcastically, suggesting that the managers should be the ones to put in the extra effort. In a further sign of discontent, employees, who are among the best compensated in the country, have recently gone on strike, demanding higher pay.
Samsung’s recent complacency is partly attributable to Chairman Lee Jae-yong’s eight-year-long legal troubles.
However, there are other significant factors. While TSMC has staffed its board with leading semiconductor experts, Samsung’s board includes bureaucrats, financiers, and academics with little to no technical expertise.
A board like this is unlikely to raise critical concerns or push for innovative decision-making. To regain its once-dominant position, Samsung must reform its decision-making system and management structure, clearly recognizing that staying competitive depends solely on advancing their technological capabilities.
The company must also go all out to recruit top technical talent, and Chairman Lee and his leadership team need to abandon their defensive, risk-averse approach.
Without reviving the pioneering spirit exemplified by the symbolic burning of defective products during the Anycall bonfire ceremony, which highlighted Samsung’s commitment to quality, the company’s revival will be challenging. Since Samsung’s future is closely tied to the future of the Korean economy, this situation is a significant cause for concern.
