(Bloomberg) — Just a few months back, Samsung Electronics Co. appeared exceptionally well-positioned to capitalize on the burgeoning global AI market; profits were soaring, and its stock was climbing toward an unprecedented peak, generating optimism among investors.
Now, however, South Korea’s largest corporation stands as a cautionary tale, illustrating how swiftly fortunes can shift in an industry where technological supremacy dictates survival and success.
As worries escalate that Samsung is falling behind smaller competitor SK Hynix Inc. in the AI memory sector and failing to catch up with Taiwan Semiconductor Manufacturing Co. in the outsourced chipmaking arena, Samsung’s shares have plummeted 32% from their zenith on July 9. During this tumultuous period, the company has seen a staggering $122 billion evaporate from its market capitalization, a greater loss than any other chipmaker globally.
In response to the mounting challenges, Samsung has pledged a comprehensive revamp to reclaim its competitive edge; however, influential international investment firms, including Pictet Asset Management Ltd. and Janus Henderson Investors SP Ltd., remain skeptical about a swift recovery. Since late July, overseas investors have shed approximately $10.7 billion worth of the corporation’s shares on a net basis.
“We have more than halved our position in Samsung over the last few months — it was the largest position in our strategy in July,” stated Sat Duhra, a portfolio manager at Janus Henderson Investors SP in Singapore, highlighting the drastic shift in sentiment. While he noted that the shares have dropped to an enticing valuation, he remains “uninterested” in purchasing them for the time being.
Smartphones and consumer electronics still represent the largest segment of Samsung’s sales, yet semiconductors have been the backbone of its profitability in recent years. With the current crisis impacting its chip division, the Suwon-based giant issued an unusual apology to investors earlier this month, acknowledging its disappointing quarterly results.
The unfolding narrative exemplifies how critical AI technology has become in determining the distinct winners and losers within the semiconductor industry. While foreign investors have led an exodus from Samsung, companies like Nvidia Corp. have surged to become among the largest in the world; TSMC, the pivotal manufacturer for chips designed by Nvidia and Apple Inc., has amassed over $330 billion in increased market value this year alone.
Things deteriorated for Samsung at a dizzying pace. Initially, the company’s stock flirted with a record high after reporting an astounding 15-fold surge in operating profit for the June quarter. As recently as August, investor sentiment was buoyant, with expectations that Samsung could secure additional contracts to supply Nvidia with high-bandwidth memory integral for AI processors.
That optimism dissipated quickly, especially after Samsung acknowledged significant delays with its next-generation HBM chips in early October, shortly after SK Hynix announced it had commenced volume production. Simultaneously, US rival Micron Technology Inc. is ramping up its HBM capabilities and has reported robust demand for its products.
“Samsung is losing its technological lead in the semiconductor industry,” commented Young Jae Lee, a senior investment manager at Pictet Asset Management based in London. “Regaining that leadership is inherently challenging, especially in the short term,” he added, revealing that his firm has been trimming its holdings in Samsung.
Beyond its struggle in AI memory, Samsung is grappling with the consequences of an expensive, protracted initiative aimed at narrowing the gap with TSMC in foundry services. Similar to Intel Corp., which has encountered obstacles in expanding its outsourced chipmaking efforts, the Korean tech titan is now implementing job cuts and other measures to staunch its financial losses.
Samsung is set to hold a conference call this Thursday following the release of its detailed third-quarter earnings report. Key points of interest will include an anticipated restructuring of its management team before the close of the year, amid ongoing uncertainties surrounding the company’s leadership.
Jay Y. Lee, the grandson of Samsung’s founder and appointed executive chairman two years ago, faced legal challenges but was acquitted of stock manipulation charges in February after a protracted legal battle. Three months later, the company made headlines by replacing the head of its semiconductor division, turning to Jun Young-hyun, a seasoned veteran in the memory chip sector.
Management is undoubtedly facing a formidable task in attempting to regain investor confidence, even as stock valuations hover near record lows and technical metrics indicate oversold conditions.
“We don’t anticipate much change as Samsung executives and engineers continue to depart,” remarked Park Jinho, head of equity investment at NH-Amundi Asset Management Co. in Seoul. Park made the strategic decision to downgrade Samsung to an underweight position from neutral at the end of Q2, simultaneously opting to invest in SK Hynix instead.
–With assistance from Karen Yang, Selcuk Gokoluk and Heejin Kim.