Samsung's Q2 Profit Expected to Plunge 39% Amid AI Chip Supply Challenges

Reviewed byNidhi Govil

2 Sources

Samsung Electronics is forecasted to report a significant drop in Q2 operating profit due to delays in supplying advanced memory chips to AI leader Nvidia, highlighting the company's struggles in the competitive AI chip market.

Samsung's Profit Plunge Amid AI Chip Challenges

Samsung Electronics, the world's largest memory chip maker, is bracing for a significant downturn in its financial performance. The tech giant is expected to report a 39% drop in second-quarter operating profit, with projections pointing to 6.3 trillion won ($4.62 billion) - its lowest in six quarters and fourth consecutive quarterly decline 12.

AI Chip Supply Delays and Market Competition

Source: Reuters

Source: Reuters

The primary factor behind this financial setback is Samsung's delay in supplying advanced memory chips to Nvidia, the leader in artificial intelligence chips. This lag has raised concerns among investors about Samsung's ability to compete with smaller rivals in developing high-bandwidth memory (HBM) chips, which are crucial for AI data centers 1.

While competitors like SK Hynix and Micron have capitalized on the growing demand for AI-related memory chips, Samsung's gains have been limited. The company's reliance on the Chinese market, where U.S. restrictions on advanced chip sales are in place, has further dampened its performance 12.

Slow Progress in HBM Chip Development

Samsung's efforts to get its latest HBM chips certified by Nvidia have been moving at a sluggish pace. According to Ryu Young-ho, a senior analyst at NH Investment & Securities, "HBM revenue likely remained flat in the second quarter, as China sales restrictions persist and Samsung has yet to begin supplying its HBM3E 12-high chips to Nvidia" 1.

The company had anticipated meaningful progress with its HBM chip as early as June, but has declined to comment on whether its HBM 3E 12-layer chips have passed Nvidia's qualification process. However, Samsung has started supplying these chips to AMD, as confirmed by the U.S. firm in June 12.

Broader Business Challenges

Beyond the AI chip market, Samsung faces additional hurdles:

  1. Potential U.S. tariffs on imported smartphones, although this might temporarily boost sales as retailers stock up 12.
  2. Uncertainty stemming from various U.S. trade policies, including a proposed 25% tariff on non-US-made smartphones 12.
  3. The possibility of the U.S. revoking authorizations for global chipmakers, including Samsung, to receive U.S. technology at their plants in China 12.

Market Performance

Despite these challenges, Samsung's shares have climbed about 19% this year. However, this performance lags behind the broader market, with the benchmark KOSPI rising 27.3% over the same period. Samsung currently stands as the worst-performing stock among major memory chipmakers this year 12.

As the tech industry continues to evolve rapidly, particularly in the AI sector, Samsung's ability to overcome these obstacles and regain its competitive edge will be crucial for its future growth and market position.

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