Samsung flags big miss in second-quarter profit, blames US AI chip curbs on China

Highlights:

• Samsung sees Q2 profit at 4.6 trln won v 6.2 trln won analysts' estimate
• Company blames miss on US curbs on AI chip sales to China
• Analysts cite delays in Samsung AI chip supply to Nvidia
• Samsung shares fall 0.2%

Samsung Electronics on Tuesday projected a far worse than expected 56% plunge in second-quarter operating profit due to weak AI chip sales, deepening investor concerns over the tech giant's ability to revive its struggling semiconductor business.

The world's biggest memory chipmaker blamed the profit miss on US restrictions on advanced AI chips for China, but analysts said the decline was also due to delays in supplying high-bandwidth memory (HBM) chips to key US customer Nvidia.

In March, Samsung flagged meaningful progress on its latest HBM 3E 12-layer chips could come as early as June. But on Tuesday it gave no update on supply to Nvidia, only saying its improved HBM products were undergoing customer evaluation and proceeding with shipments.

Key rivals SK Hynix and Micron have benefited from robust demand for memory chips driven by AI growth in the United States, while Samsung relies more on China, where sales of advanced chips are restricted by the US and competition with local rivals is growing.

"For Samsung Electronics, the key issue remains regaining competitiveness ... Everything ultimately comes back to HBM," said Ryu Young-ho, a senior analyst at NH Investment & Securities.

Potential US tariffs also cloud the outlook for Samsung's mainstay chip and phone businesses, pressuring margins.

"It will also be difficult to raise prices immediately due to competition, making it challenging to sustain high margins," Ryu said.

Samsung estimated an operating profit of 4.6 trillion won for the April-June period, versus a 6.2 trillion won LSEG SmartEstimate.

That would be its weakest in six quarters, down from 10.4 trillion won in the same period a year earlier and 6.7 trillion won in the preceding quarter.

Revenue would likely fall 0.1% to 74 trillion won from a year earlier, the filing showed.

CHIP PROFIT TO PLUNGE

Samsung attributed chip profit falls partly to inventory value adjustments, without elaborating. Analysts said unsold HBM chips to Nvidia may have contributed to the large inventory writedowns.

They estimated the chip division's operating profit could come in around 500 billion won, down over 90% from a year earlier, while its phone business profit may have improved during the period.

Samsung Electronics shares slipped 0.2% against a 1.2% rise in the benchmark KOSPI as of 0341 GMT.

It said it plans to buy back 3.9 trillion won ($2.85 billion) worth of its shares, part of a 10 trillion won buyback announced last November.

Analysts said they expect Samsung's profit to improve gradually, supported by the launch of new phones and growth in sales of HBM chips to non-Nvidia customers.

Samsung said earnings in its foundry business also fell, driven by sales restrictions and related inventory value adjustments stemming from US export controls on advanced AI chips for China, as well as continued low utilisation rates.

It expects the operating loss in its foundry business to narrow in the second half of the year as utilisation improves in line with a gradual recovery in demand.

The company plans to release detailed results including a breakdown of earnings for each of its businesses on July 31.