Samsung’s genius chip pivot could help reverse its worst-in-a-decade slump

The news: Samsung is getting walloped by the economic downturn.

• On Friday, the company said its Q1 profits fell 95.8% YoY, the biggest dropoff since 2009, per The Wall Street Journal.
• Most of the tech giant’s income comes from its semiconductor division, including memory chips, which have seen plummeting sales.
• Topline performance was slightly buoyed by strong Galaxy S23 Ultra sales. However, faster depreciation compared with other smartphone brands might affect the S23’s staying power.

A big picture problem: Persistent inflation continues to wreak havoc on the tech industry, with Samsung the latest casualty.

• Higher prices have severely curtailed consumer interest in devices that use memory chips, like PCs and smartphones.
• Samsung isn’t alone—other memory chip makers, like Micron, SK Hynix, Western Digital, and Kioxia Holdings, are also dealing with a supply glut.
• Samsung, an Apple component supplier and the world’s biggest smartphone and TV seller, is an example of the tech industry’s broader economic troubles.
• The plight makes timing for domestic semiconductor expansions risky. In addition, high inflation might force the company to spend an extra $8 billion on material and labor costs to get its Texas factory built.

On the right track: Samsung’s profit nosedive can largely be attributed to external factors. Despite that, it’s making some sensible moves.

• Chip demand for consumer electronics has tanked, but advanced chips for AI model training are a hot commodity.
• Samsung has started mass production for its first-generation neural network processing unit (NPU) called Warboy, which could give it a competitive edge if the chip can rival Nvidia’s A100 and H100 on performance, cost, and efficiency.
• On the device front, Samsung could double-down on efforts to bolster on-device AI capabilities for consumer PCs.
• Samsung employees recently leaking confidential company data to ChatGPT underscores a growing need for enterprise hardware capable of running niche or proprietary generative AI models—demand that Samsung could help meet.

This article originally appeared in Insider Intelligence's Connectivity & Tech Briefing—a daily recap of top stories reshaping the technology industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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