Samsung Electronics Faces 56% Drop in Operating Profit

Samsung Electronics has forecasted a significant 56% decrease in its operating profit for the second quarter, attributing this downturn to sluggish AI chip sales and increasing US restrictions on advanced chip exports to China. This profit warning has rekindled worries about the South Korean tech giant’s capability to revive its struggling semiconductor segment.

In a preliminary earnings update shared on Tuesday, Samsung projected its operating profit for the period between April and June to be 4.6 trillion won (around $3.36 billion), which falls well short of analysts’ expectations. This estimated figure represents the company’s lowest quarterly profit in six quarters, a drop from 10.4 trillion won a year ago and 6.7 trillion won from the previous quarter.

The leading memory chip manufacturer mentioned that the downturn was mainly due to the effects of US export controls and losses related to inventory in its Device Solutions (DS) division. Samsung stated, “The DS Division recorded a quarter-on-quarter decline in profit due to inventory value adjustments and the impact of US restrictions on advanced AI chips for China.”

Comparative Performance in the Chip Industry

While competitor chipmakers SK Hynix and Micron have seen a rise in demand spurred by AI advancements in the US, Samsung’s heavy dependence on China has turned into a disadvantage amid tightening export controls. Analysts highlighted the delays in shipping high-bandwidth memory (HBM) chips to vital partner Nvidia as another contributing factor to the profit decline.

In March, Samsung had suggested that significant advancements on its new 12-layer HBM 3E chips would be realised by June. Nevertheless, the company has not provided any updated timeline for delivering these chips to Nvidia, merely mentioning that they remain under customer evaluation.

Challenges in Samsung’s Foundry Business

Samsung’s foundry operations have also suffered, with the enterprise citing lower utilisation and inventory adjustments due to US trade restrictions. The company is expecting a smaller operating loss in its foundry division during the latter half of the year as demand is projected to recover.

Despite the disappointing outlook, Samsung’s shares increased by 0.4% during early trading on the KOSPI, although this lagged behind the benchmark index’s 1.5% gain. The company has additionally announced its plans to move forward with a share buyback programme worth 3.9 trillion won, as part of a broader 10 trillion won initiative initiated last November.

For the quarter, Samsung anticipates a minor decline of 0.1% in revenue, estimating it to be 74 trillion won compared to the same timeframe last year.

Samsung has stated that it will release comprehensive financial results, including a breakdown by its various business units, on July 31.