South Korea’s Samsung Electronics said Tuesday it expects to post an operating profit of 4.6 trillion won (1,000 won) in the second quarter of this year, hurt by weak artificial intelligence chip sales and other factors, down 55.94 per cent year-on-year. The figure was below the won 6,360 bn consensus forecast by analysts in a FactSet survey. The Financial Times said the profit was the lowest in six quarters. Analysts believe this has deepened investor concerns about the technology giant’s ability to revive its semiconductor business.
Samsung Electronics said in a statement that the adjustment in inventory values and U. S. restrictions on exports of advanced artificial intelligence chips to China were the main reasons for the profit decline. Analysts also blamed Samsung’s delayed supply of high-bandwidth memory (HBM) chips to Nvidia, its main American customer. CNBC reports that Samsung has been lagging behind rivals such as SK Hynix of South Korea and Micron Technology of the US in HBM chips.
Samsung semiconductor Semiconductor fabrication plant in Texas. (IC Photo)
HBM is an advanced memory chip technology, which is widely used in artificial intelligence chips and other high-performance computing fields.
Samsung Electronics did not give a breakdown of unit earnings, but Reuters quoted analysts as saying that operating profit from its chip division was likely to be about won500bn, down more than 90 per cent from the same period last year. Shares in Tuesday fell as much as 1.13 per cent in early trading after the results. Samsung Electronics shares are up about 16% this year through July, lagging behind gains by other major memory chip makers.
“Samsung Electronics’ semiconductor business is in a completely shambles state,” South Korea’s Chosun Ilbo reported Wednesday, citing a slow response to the HBM chip, which is needed to run artificial intelligence, samsung Electronics handed over throne of memory chips to SK Hynix. The Nikkei Asia review recently reported that Samsung Electronics is delaying the completion of its texas-based Semiconductor fabrication plant plant because of technical difficulties in finding enough local customers to absorb production capacity.
At the same time, the gap between the South Korean technology giant and its main rival, TSMC, is widening in contract manufacturing-the commissioning of semiconductors. “Chosun Ilbo” said Samsung Electronics in the 3-nanometer chip due to low product yield is in trouble. TSMC had a 67.6 per cent share of the global contract manufacturing market in the first quarter of this year, compared with Samsung’s 7.7 per cent. Smic is playing catch-up with a 6 per cent share.
The Wall Street Journal, the Financial Times and other foreign media also cited uncertainty over U.S. trade policy as adding to concerns about Samsung’s smartphone and home appliance businesses. The results came after President Donald Trump Lee Jae-myung posted a letter to his South Korean counterpart on social media platforms announcing the imposition of a 25 per cent tariff on all South Korean imports from August 1. In addition, the strong won also affects the price competitiveness of Samsung products. The won has appreciated about 7 per cent against the dollar this year.
However, some analysts said Samsung’s results would improve on the back of new smartphone launches and increased sales of HBM chips to customers such as Broadcom of the US. Samsung also expects its operating loss to narrow in the second half as demand recovers.
Global demand for chips remains strong, with the world semiconductor trade organisation recently forecasting that the global semiconductor market will reach $700.9 bn by 2025, up 11.2 per cent year-on-year. However, some analysts believe that the current Korean technology giant is facing unprecedented competitive pressure, and whether it can make a breakthrough in the field of artificial intelligence chips as soon as possible is the key to reversing its declining performance.
Notably, Accounting networks and associations pricewaterhousecoopers warned this week that about 32 per cent of global semiconductor production could be at risk of disruption to copper supplies by 2035 because of climate change, that creates another uncertainty for global Semiconductor industry.