Samsung Expects Q2 Profits to Fall Over 50% as AI Chip Challenges Mount

Samsung Electronics has warned investors to expect a 56% drop in second-quarter profit, signaling continued struggles to catch up in the booming artificial intelligence (AI) chip market.

The South Korean tech giant projected an operating profit of 4.6 trillion won (approx. $3.36 billion) for the quarter ending in June, a steep fall from 10.44 trillion won reported during the same period last year. The figure also missed analyst expectations. According to LSEG’s SmartEstimate, Samsung was forecast to post an operating profit of 6.26 trillion won.

Samsung also expects revenue of 74 trillion won, falling short of the 75.55 trillion won predicted by analysts.

Shares of the company fell as much as 1.13% in early trading on Tuesday following the earnings guidance.

Samsung, which is one of the world’s largest producers of smartphones and memory chips, is feeling the pressure as competitors like SK Hynix and Micron gain ground in supplying high-bandwidth memory (HBM) chips, a crucial component for AI applications. Nvidia, the global leader in AI chips, is currently relying on SK Hynix as its key HBM supplier.

“The disappointing earnings are due to ongoing operating losses in the foundry business, while the upside in the high-margin HBM business remains muted this quarter,” said MS Hwang, research director at Counterpoint Research.

Samsung is still trying to get its latest version of HBM chips certified by Nvidia. According to a local report, that certification may not happen before September, delaying any near-term gains.

The company declined to comment on the progress of its Nvidia relationship but confirmed that improved HBM products are under evaluation and some shipments have begun.

“It’s clear Samsung has yet to pass Nvidia’s qualification for its most advanced HBM,” said Ray Wang, research director at Futurum Group. “Since Nvidia accounts for around 70% of global HBM demand, the delay meaningfully caps near-term upside.”

Samsung has reportedly secured some HBM business with AMD, but the impact is unlikely to show up in Q2 results due to slow production ramp-up.

Beyond memory chips, Samsung’s foundry business, where it manufactures chips for other companies, is also struggling. It continues to face weak demand and stiff competition from Taiwan Semiconductor Manufacturing Company (TSMC), the global leader in contract chipmaking.

The company is also grappling with inventory value adjustments and the effects of U.S. restrictions on advanced AI chips exported to China, which have dampened its performance in recent quarters.

In a separate report from September, Reuters revealed that Samsung had ordered a 30% staff cut in some divisions, citing internal restructuring amid global tech industry slowdowns.

Despite the disappointing Q2 outlook, Samsung’s stock is up over 16% year-to-date, according to LSEG data. The company is scheduled to release its detailed earnings report later this month, which will give a clearer picture of its performance and future plans.