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Samsung Profit Plunges 56% Amid AI Chip Woes, U.S. Export Curbs to China

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Samsung Electronics reported a steep 56% year-on-year drop in Q2 operating profit, projecting earnings of 4.6 trillion won ($3.36 billion)—significantly below analyst expectations of 6.2 trillion won, according to LSEG SmartEstimate. This marks Samsung’s weakest quarterly performance in six quarters, as its semiconductor division continues to struggle with shifting global dynamics in the AI chip market.

The South Korean tech giant blamed its sharp decline on U.S. restrictions on AI chip exports to China, which have disrupted its sales pipeline. However, analysts pointed to delays in delivering high-bandwidth memory (HBM) chips to Nvidia as a major factor in its underperformance. Unlike rivals SK Hynix and Micron, which have seen strong AI-driven chip demand, Samsung has been slower to supply its latest HBM3E 12-layer chips, with customer evaluations still ongoing and no specific update on Nvidia shipments.

“Everything ultimately comes back to HBM,” said Ryu Young-ho, an analyst at NH Investment & Securities, noting that Samsung’s competitive edge hinges on reclaiming leadership in the HBM segment.

Revenue for the quarter is expected to come in nearly flat at 74 trillion won, down just 0.1% from a year ago. But the semiconductor division likely took the hardest hit, with analysts estimating its operating profit may have dropped over 90% to just 500 billion won, partly due to inventory value adjustments and unsold HBM stockpiles.

Adding to the challenges, potential U.S. tariffs and mounting competition in China—where Samsung still has a heavy market presence—are expected to weigh on both its chip and smartphone margins in the near term.

Samsung’s foundry business also saw falling earnings, attributed to low utilisation rates and inventory write-downs, stemming from the same U.S. AI chip export restrictions. However, the company expects foundry performance to gradually improve in the second half of 2025 as utilisation recovers with demand.

Despite the weak outlook, Samsung announced a 3.9 trillion won ($2.85 billion) share buyback, part of a broader 10 trillion won repurchase plan unveiled in late 2024. Investors remained cautious, with Samsung shares slipping 0.2%, while Korea’s benchmark KOSPI index rose 1.2% during morning trading.

Looking ahead, Samsung hopes to recover with upcoming phone launches and by expanding HBM sales beyond Nvidia to other customers. A full breakdown of business unit performance is expected on July 31, when the company releases its detailed Q2 earnings report.

Samsung Electronics Faces 39% Drop in Q2 Profit Amid Weak AI Chip Sales

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Samsung Electronics is expected to report a 39% decline in its second-quarter operating profit, largely due to delays in supplying advanced memory chips to AI chip leader Nvidia, industry analysts said. The South Korean tech giant is forecast to announce an operating profit of 6.3 trillion won ($4.62 billion) for April to June, marking its lowest earnings in six quarters, according to LSEG SmartEStimate.

This downturn has raised concerns about Samsung’s ability to compete with rivals like SK Hynix and Micron in the rapidly growing market for high-bandwidth memory (HBM) chips used in artificial intelligence data centers. While its competitors have seen strong demand, Samsung’s growth has been limited by its heavy reliance on the China market, where U.S. export restrictions have curbed sales of advanced chips.

Analysts point out that Samsung’s latest HBM chips, specifically the HBM3E 12-high version, have not yet received Nvidia’s certification, slowing supply to the U.S. AI chip leader. Ryu Young-ho, senior analyst at NH Investment & Securities, noted that Samsung’s shipments to Nvidia are unlikely to be significant in 2025. Samsung has, however, started supplying the new chip to AMD since June.

Despite challenges in the chip segment, Samsung’s smartphone sales remain steady, supported by stockpiling ahead of potential U.S. tariffs on imported devices. Nonetheless, ongoing U.S. trade policies, including proposed tariffs on non-U.S.-made smartphones and possible restrictions on technology exports to Samsung’s Chinese plants, continue to create business uncertainty.

Samsung’s shares have underperformed this year compared to the KOSPI index, rising about 19% against the KOSPI’s 27.3% increase. As of Monday, Samsung shares dipped 1.9%, while the KOSPI rose 0.3%.

US-South Korea Trade Talks Focus on Big Tech Regulation, Agriculture, and Strategic Cooperation

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The United States and South Korea continue negotiations aimed at resolving trade issues, including tariffs, digital services regulation, agriculture, and strategic investments. South Korea is seeking to extend a 90-day pause on 25% U.S. tariffs set to expire on July 9 as talks progress.

Key Issues in the Negotiations:

1. Digital Services and Big Tech Regulation

  • South Korea is advancing legislative proposals to regulate major tech companies like Google, Apple, Facebook, and local firms Naver and Kakao, aiming to curb market dominance and protect smaller businesses.

  • U.S. lawmakers have expressed concern that South Korea’s laws mirror the EU’s Digital Markets Act and unfairly target American tech firms while exempting Chinese giants such as ByteDance and Alibaba.

  • The ruling Democratic Party in South Korea is reportedly slowing down antitrust legislation to balance trade sensitivities.

2. Content Providers and Data Restrictions

  • South Korea requires content providers like Netflix to pay network usage fees.

  • Restrictions on exporting location-based data by Google and other providers are a sticking point, linked to national security concerns related to North Korea.

  • South Korea plans to rule on Google’s renewed request to use detailed mapping data outside the country by August 11.

3. Agriculture Access and Market Sensitivities

  • The U.S. seeks greater access to South Korea’s agriculture sector, particularly beef, apples, and potatoes.

  • South Korea restricts imports of beef from animals older than 30 months over mad cow disease concerns.

  • Although tariffs on beef will drop to zero by 2026 under a 2007 pact, farmers remain concerned about further market liberalization.

  • South Korea’s heavy tariff on rice imports (over 500%) has not been raised recently in talks.

4. Defense Costs and Foreign Exchange Policies

  • Discussions on foreign exchange policy and cost-sharing for approximately 28,500 U.S. troops stationed in South Korea are ongoing but handled separately from trade talks.

5. Industrial Cooperation and Investments

  • Both sides emphasize industrial cooperation, particularly in shipbuilding, as a way to revitalize U.S. manufacturing and reduce trade deficits.

  • South Korea is noted as a leader in AI, semiconductors, chips, batteries, and automotive industries.

6. Alaska LNG Project

  • South Korea is cautiously considering energy purchases linked to the $44 billion Alaska LNG project, awaiting more technical details from the U.S. later this year.