Weak AI chip sales and China curbs drag Samsung profit down 55%

• South Korean chipmaker’s prolonged underperformance has triggered concerns among investors.

Samsung Electronics has faced a turbulent quarter, reporting a 55 per cent drop in second-quarter operating profit as key pressures continue to weigh on its semiconductor division.

For the April to June period, the company posted an operating profit of 4.7 trillion won (about $3.37 billion)—the weakest performance seen in six quarters and matching closely with their prior guidance of 4.6 trillion won. While revenue inched up 0.7 per cent to 74.6 trillion won, aligned with earlier estimates, these small gains haven’t done much to soothe investor nerves.

The heart of the challenge remains with Samsung’s chip division, traditionally its powerhouse. This quarter, the unit reported just 400 billion won in profit, a staggering fall from 6.5 trillion won the same period a year ago. This marks a notable milestone: it’s the first time in six quarters the division’s profit has dipped below the 1 trillion won threshold.

Samsung attributed this steep decline to several factors. The company cited adjustments to memory chip inventories and one-off costs related to US export controls, which limit the sale of advanced semiconductors to China, affecting the company’s contract chipmaking business.

Struggling to narrow technological gap

These headwinds are exacerbated by slow shipments of high-bandwidth memory (HBM) chips—an area where Samsung is struggling to narrow the technological gap with more nimble rivals supplying big players like Nvidia, especially for artificial intelligence data centre applications.

The chipmaker’s prolonged underperformance has triggered concerns among investors regarding its ability to catch up in the critical HBM market, an arena gaining importance with every leap forward in generative AI technologies.

There’s a sense of urgency now for the South Korean giant to innovate and regain commercial momentum.

On the bright side, Samsung secured a beacon of hope just days before these results: Tesla signed a $16.5 billion deal to source chips from Samsung, providing a potential lifeline for its foundry business, which manufactures chips on a contract basis.

The lucrative partnership with Tesla might help buoy the foundry division and offset recent losses, but the company still faces a challenging path ahead as it adapts to shifting global trade dynamics and escalating technological demands.