Samsung's profit halves, falls 1st time since 2023 on chip business crisis

Business Standard

a day ago

The disappointing results underscore how South Korea's largest company has ceded leadership in the AI market to SK Hynix Inc. in the post-ChatGPT infrastructure boom
Bloomberg
By Yoolim Lee
Samsung Electronics Co.'s profit fell for the first time since 2023, reflecting the deepening market share losses clouding the memory chipmaker's prospects in the AI era.
The company reported a sharper-than-anticipated 56 per cent plummet in operating income for the June quarter, which it blamed on inventory writedowns following US curbs on Chinese-bound AI chips. Its shares swung between gains and losses in Seoul Tuesday after the company announced a 3.9 trillion won stock buyback.
The disappointing results underscore how South Korea's largest company has ceded leadership in the AI market to SK Hynix Inc. in the post-ChatGPT infrastructure boom. Its longstanding rival — along with Micron Technology Inc. — now sells more of the cutting-edge high-bandwidth memory chips paired with Nvidia Corp.'s AI accelerators. Compounding the problem, US restrictions on tech exports to China are hindering a turnaround in its loss-making contract chipmaking operation.
Still, some investors expect the chips-to-smartphone company to have hit bottom over the summer. Nvidia is shifting toward a new generation of memory chips, offering Samsung an opening. The one-time inventory adjustment suggests it wants to start the second half with a clean slate, said Sanjeev Rana, head of research at CLSA Securities Korea.
'This is likely to be the bottom,' he said. 'Looking beyond the disappointing results in the second quarter, we expect a sequential recovery.'
The company reported a preliminary operating profit of 4.6 trillion won ($3.3 billion) in the June quarter — the company's lowest since 2023 and short of analysts' projections. Revenue was flat at 74 trillion won. The company will provide a full financial statement with net income and divisional breakdowns later this month.
Profit fell after Samsung's foundry arm, which has relied in part on Chinese demand, booked a one-time inventory cost on unsold AI chips. Usage rates also fell, the company said in an unusual statement issued to explain the worse-than-expected performance. Operating losses in its contract chipmaking business are expected to narrow in the second half of the year on a gradual recovery in demand, Samsung said.
The key for Samsung now is next-generation AI memory.
Attention has been on Samsung's attempt to secure certification from Nvidia for its most advanced product, 12-layer HBM3E. Its failure to do so is creating an unusually long lead time for SK Hynix in the highly lucrative space, while US competitor Micron has been rapidly advancing, further reducing Samsung's pie.
Customer evaluation and shipments of its advanced memory products are proceeding, Samsung said.
What Bloomberg Intelligence Says
Samsung could lag SK Hynix in operating profit during 2H as it reported 2Q operating profit 26 per cent below consensus. Its high-bandwidth memory (HBM) chips could remain affected by US regulations which restrict exports to China. Also, US tariffs on consumer electronics and smartphones might weigh more on Samsung than on SK Hynix. But Samsung's 3Q profit could recover sequentially as seasonality kicks in.
-Masahiro Wakasugi, Takumi Okano, BI analysts
SK Hynix has meanwhile aggressively positioned itself as Nvidia's primary HBM4 supplier. It shipped the world's first 12-layer HBM4 samples to customers ahead of schedule, followed by Micron in June, while Samsung has had to revise its 12-layer HBM3E design.
Bernstein analysts led by Mark Li estimated in a June 23 note that SK Hynix holds 57 per cent of the HBM market in 2025, followed by Samsung at 27 per cent and Micron at 16 per cent.
At its annual shareholder meeting in March, Samsung vowed to strengthen its position in the HBM market this year, responding to concerns over its underperformance in AI. Jun Young-hyun, head of Samsung's chip business, said that Samsung's failure to secure an early lead in the HBM market contributed to it lagging behind rival SK Hynix and pledged not to repeat the mistake with HBM4. The next-generation memory is expected to be used in Nvidia's Rubin GPU architecture.
In April, Samsung said it shipped enhanced HBM3E samples to major customers and expected that product line to contribute to revenue in the second quarter. The company had also said it plans to begin mass production of HBM4 chips in the second half of the year.