When Samsung warned this week that its third-quarter profits would fall short of expectations, it wasn’t just a blip for the South Korean tech giant. It signifies a seismic shift rippling through global technology commerce, driven by the increasing demand for artificial intelligence (AI) products.
Samsung, once a leader in memory chips and consumer electronics, is racing to adapt to AI’s growing influence. Its struggle to catch up in high-end AI chip production underscores a wider issue for traditional tech giants: innovate quickly in AI or fall behind.
“As chips advance, they are far more complex in design and fabrication processes,” Michelle Brophy, technology, media and telecommunications research director at the market intelligence firm AlphaSense, told PYMNTS. “None of the major chip manufacturers have been immune to growing pains, though Taiwan Semiconductor has been the market leader by far.”
The tech giant estimated its operating profit for the quarter ended Sept. 30 at 9.1 trillion won ($6.78 billion), well below analysts’ projections of 10.3 trillion won ($7.66 billion). This shortfall prompted a rare apology from Samsung executives, who acknowledged the company faces headwinds in the rapidly evolving semiconductor landscape.
At the heart of Samsung’s challenges is a delay in its AI chip business with a major customer, widely believed to be Nvidia, Reuters reported. Simultaneously, the company is grappling with increased competition from Chinese rivals in conventional chip markets. These setbacks come as demand for AI-optimized chips surges, forcing traditional semiconductor manufacturers to adapt their product lines and production processes rapidly.
This shift is redrawing the map of global tech commerce. Firms specializing in AI-optimized chips have seen their market value soar, while traditional semiconductor giants like Samsung and Intel race to catch up. The ripple effects extend beyond the chip industry, touching everything from smartphone production to cloud computing infrastructure.
In the memory chip market, where Samsung has long reigned supreme, the company now faces stiff competition from smaller rival SK Hynix in supplying high-bandwidth memory (HBM) chips crucial for AI applications, Brophy said.
The implications for global commerce are profound. The race to develop AI capabilities intensifies competition between tech hubs like Silicon Valley, Seoul and Shenzhen in China, potentially reshaping global trade flows in high-tech goods.
“Longer term, I would expect the growth of AI products and applications to serve as a tailwind to the broader market,” Brophy said.
Moreover, the AI revolution is blurring traditional industry boundaries. Cloud service providers are increasingly designing their chips, while chipmakers are expanding into software and services. This convergence is forcing companies to rethink their business models and competitive strategies.
The impact of AI extends to the smartphone market as well.
“AI will likely play a major role in reshaping the high-end smartphone market, from both a software and hardware perspective, as AI requires specialization,” Brophy told PYMNTS. “Samsung is in a strong position overall because the company has the in-house development, design and semiconductor foundry capacity to support and scale those designs.”
Samsung’s journey to catch up in AI chip production and rethink its broader product strategy could serve as a bellwether for the industry, with Samsung Vice Chairman Young Hyun Jun noting: “These are testing times.”
How Samsung and its peers navigate these turbulent waters will likely shape the future of global tech commerce for years to come.
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