Samsung Electronics Co. was once on the brink of benefiting from the global AI boom, with soaring profits and a rising stock price. However, in a swift turn of events, the South Korean tech giant has found itself struggling to maintain its technological edge in the fiercely competitive industry.
The company is facing stiff competition from smaller rival SK Hynix Inc. in AI memory and is lagging behind Taiwan Semiconductor Manufacturing Co. in outsourced chipmaking. As a result, Samsung’s shares have plummeted 32% from their peak in July, resulting in a loss of $122 billion in market value.
To address these challenges, Samsung has promised a comprehensive overhaul to regain its competitive edge. However, international money managers remain skeptical about the company’s ability to turn things around. Overseas investors have sold approximately $10.7 billion worth of Samsung shares since July.
“We have more than halved our position in Samsung over the last few months – it was the largest position in our strategy in July,” said Sat Duhra, a portfolio manager at Janus Henderson Investors SP in Singapore. Despite the attractive valuation of Samsung shares, Duhra has no immediate plans to reinvest in the company.
While smartphones and consumer electronics remain Samsung’s primary revenue drivers, semiconductors have been the main source of profit in recent years. The company’s recent struggles in the chip business have prompted a rare apology to investors for disappointing results.
The evolving landscape of the semiconductor industry underscores the pivotal role of AI in determining winners and losers. While Samsung has seen a decline in investor confidence, Nvidia Corp. and TSMC have experienced significant gains in market value this year.
Samsung’s stock reached record highs following a surge in operating profit in the June quarter. However, setbacks such as delays in the production of HBM chips and increased competition from rivals like Micron Technology Inc. have dampened investor optimism.
According to Young Jae Lee, a senior investment manager at Pictet Asset Management, Samsung is “losing its technology leadership in the semiconductor business,” making it challenging to regain ground in the short term. The company’s struggles extend beyond AI memory to its foundry business, where it faces tough competition from TSMC.
Despite ongoing efforts to address these challenges, including potential management reshuffles and cost-cutting measures, Samsung’s leadership remains uncertain. Jay Y Lee, the company’s executive chairman, was acquitted of stock manipulation charges earlier this year, but management changes and departures have raised concerns among investors.
As Samsung prepares to release its third-quarter earnings, all eyes are on the company’s performance and strategic direction. With stock valuations at a record low and technical indicators signaling oversold conditions, Samsung’s management faces an uphill battle to regain investor confidence.
“We don’t see much is changing with the Samsung executives and engineers are leaving the company,” said Park Jinho, head of equity investment at NH-Amundi Asset Management Co. in Seoul. Park has shifted his focus to SK Hynix, reducing Samsung to underweight in his portfolio.
In conclusion, Samsung’s recent struggles highlight the challenges faced by tech giants in maintaining their competitive edge in the rapidly evolving semiconductor industry. As the company navigates through these turbulent times, its ability to innovate and adapt to changing market dynamics will determine its future success.
