Samsung Blames U.S. for Surprise Profit Plunge—Can Galaxy Unpacked Save the Day?

Samsung Electronics delivered an unwelcome surprise Tuesday, warning that its second-quarter operating profit would plunge 56% from the prior year, a sharp miss tied largely to geopolitical headwinds and delays in AI chip sales. The tech giant projected operating profit for the April-June period to fall to 4.6 trillion Korean won (~$3.4 billion), far below the 6.2 trillion won consensus estimate from analysts. Revenue is expected to be roughly flat at 74 trillion won, compared with 60.01 trillion won in Q2 2024.

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The shortfall reflects a confluence of challenges, with U.S. trade curbs on China taking center stage. Specifically, Samsung cited restrictions on the export of advanced AI chips to Chinese firms, a move that has delayed shipments of high-bandwidth memory (HBM) chips to key customer Nvidia. Analysts suggest the delay in securing regulatory approval for these exports, coupled with a slower ramp in AI chip demand than anticipated, has weighed heavily on the company’s semiconductor division.

Despite the miss, shares of Samsung fell only modestly, down about 0.2% in Korean trading. This relatively muted reaction suggests investors had braced for some weakness, and may be looking ahead to what Samsung has in the pipeline. CLSA's Sanjeev Rana noted this could represent a bottom for Samsung's chip business, with expectations for sequential improvement in the second half of the year.

The earnings warning also arrives just days before Samsung’s Galaxy Unpacked event, scheduled for July 9 in New York. The company is expected to unveil its next-generation foldable phones, including the Galaxy Z Fold 7, Z Flip 7, and a budget-friendly Z Flip 7 FE. Leaks suggest these devices will feature thinner builds, improved battery life, and upgraded chipsets, including Qualcomm' Snapdragon 8 Elite.

According to leaked promotional materials, the Galaxy Z Fold 7 will come in at just 4.2mm thick when unfolded and 8.9mm when folded, making it the lightest book-style foldable yet. It will reportedly sport 6.5-inch and 8-inch displays, a 200MP main camera, and up to 1TB of storage. Meanwhile, the Flip 7 is expected to debut with a larger 4.1-inch cover screen and a 50MP main camera, mirroring a design trend seen in Motorola's latest flip models.

While Galaxy Unpacked offers a timely distraction, investors remain focused on the health of Samsung’s core semiconductor operations. The company’s chip business had been staging a modest recovery after a prolonged slump in 2023, but the latest guidance raises fresh questions about the pace of that rebound. The delay in AI chip sales to Nvidia is particularly concerning, given the high-margin nature of those products and the broader market optimism around AI infrastructure.

Still, Samsung appears to be taking steps to shore up investor confidence. The company indicated that operating losses in its contract chipmaking business are expected to narrow in the second half of the year as demand gradually returns. That aligns with a broader industry view that the worst may be over for the memory chip cycle, and that AI-related demand will eventually ramp back up.

The profit warning also underscores how exposed Samsung is to shifting trade policies and export controls, particularly as Washington tightens its grip on tech exports to China. While competitors like SK Hynix have also faced similar constraints, Samsung’s scale and exposure make it especially vulnerable to disruptions.

Bottom line: Samsung’s Q2 warning marks its weakest result in six quarters and has cast a shadow over its efforts to reignite growth in semiconductors. But with promising new hardware on deck and a potentially improving demand outlook for AI chips in the second half, investors may still have reason to hang on. The key will be whether Samsung can convert Galaxy Unpacked hype into consumer momentum and prove that its semiconductor stumble is only temporary.