Samsung's Q1 Profit Expected to Drop 21% Amid AI Chip Challenges and Foundry Losses

Samsung's Q1 Profit Forecast and AI Chip Market Challenges

Samsung Electronics, the world's largest memory chip manufacturer, is expected to report a 21% drop in first-quarter profit on Tuesday. This decline is primarily attributed to sluggish sales of artificial intelligence chips and continued losses in its contract chip manufacturing business 1

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The company is projected to report an operating profit of 5.2 trillion won ($3.62 billion) for the January-March quarter, down from 6.6 trillion won in the same period last year 2

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. This forecast comes as Samsung undergoes a management reshuffle following the sudden death of co-CEO Han Jong-Hee in late March.

AI Chip Market Competition and Challenges

Samsung has been grappling with falling chip profits since mid-2024, as it fell behind key rival SK Hynix in supplying high-performance memory chips to AI chip leader Nvidia 3

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. This setback in the high-end market has left the South Korean tech giant heavily reliant on customers in China seeking less advanced products not subject to U.S. export restrictions.

Ryu Young-ho, a senior analyst at NH Investment & Securities, noted that AI chip demand from Chinese customers dropped in the first quarter after front-loading in the previous quarter, anticipating more U.S. sales restrictions 1

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Memory Chip Market Volatility

Samsung's profitability has been further impacted by its exposure to commodity chips, making it vulnerable to volatile prices. According to TrendForce data, prices of some DRAM memory chips fell by about 25% in the first quarter year-over-year, while NAND flash chip prices dropped around 50% during the same period 3

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Foundry Business and U.S. Factory Delays

In its contract chip manufacturing business, Samsung is likely to further delay the start-up of its new U.S. factory to 2027 from 2026, as it has yet to win major production orders. This delay is keeping its foundry business in the red, with the plant originally planned to open in 2024 4

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Mobile and Network Business Performance

Despite challenges in the chip sector, Samsung's mobile and network business is expected to report a profit of 3.7 trillion won, up from 3.5 trillion won a year ago. This increase is attributed to higher smartphone shipments and a depreciation of the local currency, which boosts repatriated earnings 2

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Tariff Impacts and Future Strategies

Sweeping reciprocal tariffs imposed by the U.S. are set to raise costs for various Samsung products, including smartphones, TVs, laptops, and home appliances. Jeff Kim, head of research at KB Securities, suggests that Samsung could look to diversify its production base as a long-term strategy, but notes that this cannot be achieved quickly 1

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