Samsung Electronics reported a steep decline in second-quarter profit that fell well short of analyst expectations, highlighting the Korean tech giant’s ongoing struggles to capitalize on artificial intelligence demand while grappling with US export restrictions.
Operating profit tumbled 55% to 4.7 trillion won ($3.4 billion) from 10.4 trillion won a year earlier, missing the 5.33 trillion won analyst consensus by 12%. Revenue of 74.6 trillion won ($53.5 billion) barely edged past estimates of 74.43 trillion won but declined 6% from the previous quarter’s record high.
The company’s Device Solutions division, which houses its crucial memory and foundry businesses, posted an operating profit of just 400 billion won ($287 million) – a devastating 94% plunge from 6.5 trillion won in the same period last year. This represented the division’s worst performance in years, undermining Samsung’s position in the global semiconductor race.
Samsung’s memory unit, traditionally a profit engine, suffered from what the company termed “inventory value adjustments” and one-off costs related to US export restrictions on advanced AI chips to China. The restrictions, which tightened access to high-bandwidth memory components critical for AI applications, disrupted Samsung’s sales to Chinese customers.
While Samsung expanded HBM3E sales to meet server demand and increased high-density DDR5 product shipments, it continues to lag behind smaller rival SK Hynix in the lucrative high-bandwidth memory market. Analysts note that Samsung’s HBM3E chips still await Nvidia certification, a crucial validation that could unlock significant AI customer contracts.
The company’s foundry business also struggled, with earnings remaining weak due to prolonged low utilization at mature nodes and inventory adjustments stemming from the China export restrictions. Despite securing additional sub-5nm orders, the business continues to operate at a loss.
Samsung’s mobile experience division offered a brighter spot, with operating profit rising to 3.1 trillion won ($2.2 billion) from 2.2 trillion won a year earlier. Strong sales of the Galaxy S25 series and A-series smartphones helped offset the sequential decline following the first-quarter product launches.
The division maintained double-digit profitability through efficient resource management, though smartphone shipments decreased compared to the launch quarter. Samsung plans to focus on foldable devices and AI-enhanced smartphones in the second half to maintain market share.
The earnings disappointment came just days after Samsung announced a 16.5 billion dollar chip manufacturing deal with Tesla, extending through 2033. The contract, which represents about 7.6% of Samsung’s 2024 revenue, will see the company produce Tesla’s next-generation AI6 chips at its under-construction Texas facility.
While the deal provides a crucial anchor customer for Samsung’s struggling foundry business, production isn’t expected to begin until around 2027 or 2028, offering little immediate relief for current financial pressures.
Samsung’s overall profitability metrics deteriorated sharply. Return on equity fell to 5% from 11% a year earlier, while the operating margin compressed to 6.3% from 14.1%. The company’s EBITDA margin dropped to 20% from 27% in the prior year.
Despite maintaining a strong balance sheet with 100.7 trillion won ($72.2 billion) in cash, Samsung faces mounting challenges in regaining its technological edge in AI semiconductors while navigating an increasingly complex geopolitical landscape that threatens its traditional profit centers.
