Samsung Electronics' Profit Halves Amid Chip Business Crisis

Samsung Electronics reported a 56% drop in operating income for Q2, blaming inventory writedowns and US curbs on Chinese-bound AI chips. The company's shares swung between gains and losses, and its profit fell for the first time since 2023. Samsung's ceding of leadership in the AI market to SK Hynix and US restrictions on tech exports to China are hindering its turnaround. Despite this, some investors expect the company to have hit bottom and see a sequential recovery in the second half of the year.

Samsung Electronics (SE) has reported a significant 56% decline in its second-quarter operating income, citing inventory writedowns and U.S. restrictions on Chinese-bound AI chips [1]. The South Korean tech giant's preliminary figures, released on Tuesday, indicate a challenging period for the company, with operating profit expected to stand at 4.6 trillion won ($3.5 billion), down from 10.4 trillion won ($7.6 billion) a year earlier [1].

The quarterly slowdown, marked by a 31.2% drop in operating profit from the previous quarter and a 6.5% decline in revenue, is attributed to various factors including delays in supplying high-bandwidth memory (HBM) chips to key U.S. customer Nvidia and ongoing U.S. restrictions on advanced AI chips for China [2]. These issues have hindered SE's ability to compete effectively in the AI chip market, where rivals like SK Hynix and Micron have seen robust demand driven by AI growth [2].

Despite these challenges, SE's smartphone sales are anticipated to remain strong, influenced by demand ahead of potential U.S. tariffs on imported smartphones and ongoing trade policy uncertainties. The company's shares swung between gains and losses, rising 0.4% despite the disappointing earnings report [2].

SE plans to buy back 3.9 trillion won ($2.85 billion) worth of its shares as part of a 10 trillion won buyback announced last November, aiming to bolster investor confidence [2]. Analysts expect a gradual improvement in SE's profit, supported by the launch of new phones and growth in sales of HBM chips to non-Nvidia customers [2].

SE's ceding of leadership in the AI market to SK Hynix and U.S. restrictions on tech exports to China are significant hurdles that the company must overcome. However, some investors remain optimistic, expecting SE to have hit bottom and anticipating a sequential recovery in the second half of the year [3].

References:
[1] https://www.ajupress.com/view/20250708095546766
[2] https://sg.finance.yahoo.com/news/samsung-expects-56-drop-q2-225541027.html
[3] https://brandequity.economictimes.indiatimes.com/amp/news/business-of-brands/samsung-electronics-q2-profit-likely-to-drop-39-on-weak-ai-chip-sales/122295502