Samsung’s profit plunges as AI chip woes and US tariffs bite

What simply occurred? Samsung Electronics shocked traders with a forecasted 56 p.c drop in second-quarter working revenue, projecting earnings of 4.6 trillion Korean gained (roughly $3.3 billion) for the April – June interval. This could mark the corporate’s weakest efficiency in a yr and a half and falls properly wanting market expectations.

The South Korean tech big attributed its disappointing outcomes to a mixture of US export restrictions on superior synthetic intelligence chips sure for China and ongoing challenges in supplying key buyer Nvidia with its newest high-bandwidth reminiscence merchandise.

“The non-memory enterprise skilled a decline in earnings as a consequence of gross sales restrictions and associated stock worth changes stemming from US export restrictions on superior AI chips for China, in addition to continued low utilization charges,” the corporate mentioned.

Samsung’s system options division, which incorporates its semiconductor enterprise, reported a quarter-on-quarter decline in revenue. The corporate cited stock worth changes and the influence of US export restrictions on shipments to China as the primary drivers.

Whereas Samsung has not too long ago begun delivery its new HBM3E chips to corporations similar to AMD and Broadcom, it has but to safe Nvidia’s approval, a vital step for regaining momentum within the fast-growing AI {hardware} market.

In the meantime, rivals SK Hynix and Micron Know-how are benefiting from sturdy demand for HBM chips. SK Hynix, Nvidia’s main provider, is anticipating document quarterly earnings, whereas Micron final month projected stronger-than-expected income on the again of booming HBM demand. Samsung’s shares have risen simply 20 p.c this yr, in comparison with practically 60 p.c for SK Hynix.

Analysts estimate that Samsung misplaced greater than 4 trillion gained in foundry operations in the course of the first half of the yr, because it struggled to draw main prospects for its contract chip manufacturing enterprise. The corporate’s difficulties stem from poor manufacturing yields and a widening know-how hole with business chief TSMC.

“What counts most is its HBM provide to [Nvidia] and the general chip demand restoration,” analysts at DS Funding & Securities mentioned in a current report. “However [Samsung’s] earnings will most likely rebound within the third quarter after hitting the underside within the second.”

US tariffs are compounding Samsung’s challenges. The corporate famous that duties on South Korean items are hurting gross sales of TVs and residential home equipment, whereas a stronger Korean gained – up seven p.c in opposition to the US greenback this yr – has eroded its value competitiveness.

“As macro uncertainties such because the change of a tariff coverage proceed to increase, demand volatility is anticipated to be fairly excessive accordingly,” Jaejune Kim, an govt vice chairman, mentioned throughout an earnings name.

The aggressive panorama is turning into much more crowded as Chinese language corporations like ChangXin Reminiscence Applied sciences and Huawei ramp up HBM chip manufacturing, additional threatening Samsung’s market share. Within the logic chip phase, Samsung has additionally fallen behind TSMC, one other main provider to Nvidia.

Commerce tensions between the US and South Korea stay unresolved. On Monday, President Donald Trump introduced that South Korean items would face a 25 p.c tariff beginning August 1, matching a fee he had initially proposed in April. South Korean President Lee Jae Myung described the negotiations as “very tough,” telling reporters that “the 2 sides will not be actually clear on what they need.”

Samsung is about to report its full second-quarter earnings on July 31. The corporate stays underneath stress to shut the hole with rivals and navigate an more and more complicated international commerce setting.