Samsung Electronics recently reported a substantial decrease in quarterly earnings, attributing this to intensified competition from Chinese chip manufacturers and issues with technology leaks.
On October 8, Samsung announced its third-quarter earnings at 9.1 trillion won (around $6.8 billion), reflecting a 12.8% decline from the previous quarter, a sharp contrast to the 3% growth that market analysts anticipated. The company didn't provide specifics on individual divisions but issued a statement identifying its chip sector as a major factor behind the overall decline, given the increased supply from Chinese memory chip producers.
Additionally, Lee Chan-hee, chairman of Samsung’s Compliance Oversight Committee, underscored technology leaks as a significant risk in the committee's 2023 annual report.
Following the earnings report, Samsung issued an unusual apology to investors, labeling the situation a “crisis.” Despite this, the company voiced optimism in navigating these obstacles.
The downturn comes on the heels of a loss last year when Samsung, for the first time, did not pay corporate taxes, causing concern over potential reductions in government revenue. Samsung’s struggles directly impact South Korea, where it constitutes about 18% of national exports. Officials are taking note. Park Sang-ook, the chief secretary for Science and Technology, emphasized on October 20 that Samsung’s “crisis” signals the broader need for South Korea to diversify its growth drivers beyond semiconductors.
At an October 14 think tank event, industry experts and former officials emphasized that the semiconductor sector is at a pivotal moment, with China as the leading threat. Experts agreed that the government’s full support would be essential for maintaining the country’s semiconductor leadership in the escalating international competition.
Former Trade Minister Sung Yun-mo noted that China has invested about 300 billion yuan (approximately $42 billion) in semiconductor companies in 2023, while the United States has allocated $52.7 billion through the CHIPS Act to support its semiconductor industry. He emphasized that South Korea should step up its subsidy and support efforts.
Fierce Competition from China and Technology Theft
China’s largest memory chipmaker, ChangXin Memory Technologies (CXMT), has become Samsung’s key competitor. Supported by state subsidies, CXMT has grown substantially since its establishment in 2016. Nomura Securities projects that CXMT’s DRAM chip output could reach 200,000 units per month by the end of 2024, potentially ranking it as the world’s fourth-largest DRAM producer. DRAM chips are vital for temporary data storage.
Additionally, CXMT may have benefited from technology theft. Earlier this year, South Korean prosecutors charged a former Samsung executive with leaking advanced DRAM chip production details to CXMT in 2016 and recruiting about 20 technicians from Samsung and other companies for Chinese firms.
Although CXMT’s chips aren’t as advanced as Samsung’s or its other major competitors, the company has government backing, positioning it to secure a larger share of China’s domestic smartphone and PC markets. This trend is a threat to Samsung, which heavily relies on semiconductor exports to China. Official data shows that China accounted for over 35% of South Korea’s chip exports in early 2024, with more than 90% of Samsung’s China sales coming from semiconductors.
In September, ex-Samsung and SK Hynix executive Choi Jin-seog was re-arrested over new allegations of leaking Samsung’s DRAM process technology to Chinese firms. Choi, who has been under investigation for industrial espionage since July 2023, was first detained in July 2023 and later released on bail.
Lee, Samsung’s Compliance Oversight Committee chair, reiterated that technology leaks are a significant issue in the committee’s 2023 report, calling for substantial reforms in the company’s governance structure.
Broader Challenges Impacting Samsung
Samsung’s issues are compounded by additional difficulties. Though it remains the world’s largest memory chipmaker, Samsung is falling behind SK Hynix and Micron in next-generation high-bandwidth memory chip development. In semiconductor foundries, it lags behind Taiwan’s TSMC.
Samsung’s workforce also recently saw disruptions. In July, the company faced its first major labor strike over pay and bonuses in its 55-year history. More labor unrest followed in India, with workers at Samsung’s Tamil Nadu factory going on strike from September 9 to October 16 over wage disagreements.
To address these challenges, Samsung plans to cut up to 30% of its international workforce in certain divisions by year-end, potentially affecting thousands of positions, including over 1,000 in India.
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