Samsung Electronics may lose top chip spot to TSMC

Engineers at Samsung Electronics introduce 3 -nanometer chips at the chipmaker's factory in Hwaseong, Gyeonggi, on June 30. [SAMSUNG ELECTRONICS]

Samsung Electronics may lose the title of largest chipmaker by sales to archrival TSMC after a tough quarter for the Korean company.

The loss of the top spot is a reflection of the diverging fates of the two companies as they enter a brutal downturn with a different mix of products and contrasting revenue streams.

On Friday, Hsinchu, Taiwan's TSMC reported estimate-beating third-quarter revenue of $19.4 billion, all of it chip related.

According to analyst estimates, the chip revenue for Samsung Electronics in the third quarter will be less, with the top estimate, from BNK Securities, coming in at 25.5 trillion won ($17.8 billion).

Suwon, Gyeonggi-based Samsung Electronics has only reported estimates for the third quarter without a breakdown by division. It expects an operating profit of 25.5 trillion won in the quarter, which is below analyst estimates and down 31.7 percent on year.

Sales are forecast to be 76 trillion won, up 2.7 percent on year but short of the market expectation of 78.3 trillion won.

If the final results are in line with estimates, it would be the first time for TSMC to have higher chip sales than Samsung Electronics, which held the top spot for four quarters through the second quarter of 2022.

Intel, which has taken the No. 1 spot in the past, will likely be No. 3 in the third quarter, as analysts expect its chips sales to come in between $15 billion and $16 billion.

The Korean chipmaker took a direct hit from a sharp decline in the prices of memory chips, like dynamic random-access memory (DRAM) and NAND flash products, while the Taiwanese producer was less affected given it only deals in contract-based manufacturing of processing chips.

Samsung Electronics also provides contract chipmaking services to outside clients, but its primary source of semiconductor revenue is from memory chips, which generate more than 70 percent of its semiconductor sales.

Unlike memory chips, some categories of processors have been selling well, and only TSMC and Samsung Electronics can manufacture those categorized as 5-nanometer.

Memory chip production has a low entry barrier, and there are numerous competitors, including SK hynix, Micron, Kioxia and China’s YMTC. Pricing tends to be highly volatile, more in line with that of a commodity product.

With weakening consumer demand for electronic devices, like PCs and smartphones, the price declines accelerated this year as slowing demand translated into ballooning inventories and cancelled orders.

Market tracker TrendForce estimates that the prices of DRAMs — including those used in PCs, servers, mobile devices and graphics cards — fell at least 10 percent in the third quarter.

“According to TrendForce research, rising inflation has weakened demand for consumer products, flattening the peak of peak season,” it said.

The prices of PC DRAMs fell the most, falling 13 percent and 20 percent in the third quarter.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]