Samsung chip profit tumbles while investors seek bottom

Samsung Electronics Co. memory chips. Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co.’s chip unit plunged a far bigger-than-expected 94% in the June quarter, reflecting the depth of a slump that’s plaguing the world’s largest memory chipmaker.

The weak results at the pivotal business underline how far Samsung has fallen in the lucrative artificial intelligence arena, where SK Hynix Inc. leads in high-end memory and Taiwan Semiconductor Manufacturing Co. dominates in contract chipmaking.

The chip arm reported three-month operating profit of 400 billion won ($288 million), the lowest in six quarters, versus analysts’ average projection for 2.73 trillion won. The decline stemmed largely from a one-time inventory cost as US export controls led to unsold AI chips at its foundry business, which relies in part on Chinese demand. The profit decline was despite solid demand for high-end memory products for servers, the company said.

Shares of South Korea’s largest company fell as much as 1.8% Thursday morning in Seoul.

The grim results reflect Samsung’s poor performance on high-bandwidth memory, said MS Hwang, research director at Counterpoint. Samsung’s share in the global HBM market slipped to 17% in the second quarter in terms of bit volume, down from more than 40% in the first quarter of 2024, he said.

“This suggests that Samsung has fallen behind even Micron Technology Inc. to rank No. 3,” in the second quarter, he said.

Samsung will “actively respond” to demand for higher-density memory, the company said. Operating losses at Samsung’s foundry unit are expected to narrow in the second half of the year on a gradual recovery in demand, the company said.

Samsung’s underwhelming quarterly report comes after the company won a $16.5 billion contract from Tesla Inc. to produce AI chips at an upcoming plant in Taylor, Texas. Its stock gained ground after news about the agreement broke earlier this week, bringing Samsung’s gains in July to over 20% and putting the stock on track for its best month in years.

The company has been stepping up spending on research and development and front-end capacity in its efforts to catch up with SK Hynix and Micron in AI memory chips. Samsung has struggled to get its latest products certified by Nvidia — providing an unusually long window for SK Hynix to carve out commanding leads in the booming AI memory market.

At the same time, it’s been trying to win large customers away from contract chipmaking powerhouse TSMC to revive its ailing foundry division where operating rates have plunged. TSMC has begun production in Arizona and is ramping up capacity in the US, while Samsung has slowed completion of its Taylor plant, now scheduled to start operating in 2026.

A successful implementation of the multi-year deal with Tesla would improve Samsung’s prospects for winning more clients and validate its technology for 2-nanometer mass production.

Investors are also looking for clues as to whether Samsung will benefit from Nvidia Corp.’s resumption of sales of its H20 AI chips to China. The Korean memory maker’s less advanced HBM3 has been used alongside H20 chips in the past.

Samsung, which flagged weak preliminary operating profit and revenue numbers earlier in July, said net income came to 4.93 trillion won, missing the analysts’ estimate of 6.37 trillion won.

Fears about missing first-mover advantages in AI have weighed on Samsung. That’s despite solid double-digit profitability in its mobile segment, which reported solid sales of its Galaxy S25 phones. Samsung hopes to maintain momentum through the recently released Galaxy Z Fold and Z Flip as well as the debut of its first trifold smartphone later this year.