Samsung Electronics shocked the market with a significant drop in second-quarter operating profit, projecting a 56% decrease. This decline was attributed to US restrictions on China and the company’s struggle to supply key customer Nvidia with advanced memory products. The company, known for being one of the world’s largest makers of memory chips, estimated its operating profit for April to June at Won4.6tn ($3.3bn), the lowest in six quarters. This figure was well below the Won6.3tn profit forecast by LSEG SmartEstimate, with sales remaining relatively unchanged at Won74tn.
The device solution division of Samsung, which includes its chip business, experienced a decline in profit due to inventory value adjustments and the impact of US restrictions on advanced artificial intelligence chips for China. This setback has raised concerns about the company’s ability to supply its latest HBM3E chips to Nvidia, a key player in the AI industry. While Samsung has started supplying HBM3E to chipmakers AMD and Broadcom, it has yet to secure Nvidia’s approval of its performance. This has resulted in Samsung’s shares only gaining 20% this year, compared to SK Hynix’s nearly 60% surge.
On the news of the lower-than-expected guidance, Samsung shares fell 0.6%, while SK Hynix’s stock rose 3.3% in morning trading. Micron Technology and SK Hynix, Samsung’s competitors in the HBM chip market, are expected to report strong earnings. Samsung mentioned that its improved HBM chips were undergoing evaluation by customers and being shipped, without disclosing the clients’ names.
Analysts estimate that Samsung incurred over Won4tn of foundry losses in the first half of the year due to poor yields and the growing gap with industry leader TSMC. The company’s foundry business faced challenges in securing big customers for its contract manufacturing operations.
Despite the setbacks, Samsung remains optimistic about a gradual recovery in demand in the second half of the year. The company expects operating losses to narrow as the foundry business stabilizes and demand picks up. With a focus on HBM supply to Nvidia and the overall chip demand recovery, analysts predict a rebound in Samsung’s earnings in the third quarter.
US export restrictions and tariffs have also impacted Samsung’s non-memory business, with sales restrictions and inventory adjustments affecting earnings. The company’s exports to China saw a significant increase as Chinese companies rushed to secure advanced AI chips amidst stringent US export controls. Additionally, US tariffs are affecting sales of Samsung TVs and home appliances, while the stronger Korean won is impacting price competitiveness.
To regain ground in the smartphone market, Samsung is set to launch thinner foldable handsets in New York. Despite a 12% increase in global foldable handset shipments last year, Samsung’s market share dropped from 54% to 45%. The company hopes that the new foldable models will help boost its presence in the competitive smartphone market.
