Samsung Electronics reported a staggering 56% year-on-year decline in second-quarter operating profits, attributing the sharp drop to U.S. export controls on advanced AI chips to China and weak demand in its semiconductor business.
The South Korean tech giant projected April-June operating profits of 4.6 trillion won ($3.3 billion), falling well below market expectations and marking a 31% quarterly decline.
The company’s sales also dipped, estimated at 74 trillion won, down 0.1% from a year earlier and 6.5% from the previous quarter. In a regulatory filing, Samsung acknowledged that its results “fell short of market expectations,” citing inventory adjustments and the impact of U.S. restrictions on high-performance AI chip exports to China. The Biden administration has tightened controls on advanced semiconductor sales to Beijing over concerns they could bolster China’s military and technological capabilities.
Semiconductor Slowdown and AI Chip Struggles
Samsung’s semiconductor division, typically its most profitable segment, saw declining profits due to underutilized production capacity and weak foundry performance. Analysts noted that while memory chip demand remained stable, the company’s high-bandwidth memory (HBM) chips—critical for AI computing—underperformed. Additionally, falling NAND flash memory prices widened losses.
Tom Hsu, an analyst at TrendForce, told AFP that the downturn was “primarily due to the weak foundry business,” though he predicted a rebound in memory chip demand later this year, driven by data centers and AI applications.
Exchange Rates and Trade Tensions Add Pressure
The South Korean won’s depreciation against the U.S. dollar further squeezed Samsung’s earnings, reducing both sales and operating profit. Meanwhile, the company faces growing geopolitical risks, including potential U.S. tariffs. Former President Donald Trump recently threatened South Korea with 25% tariffs, pressuring Samsung and other manufacturers to shift production to the U.S.—a move experts deem impractical given Asia’s entrenched supply chains.
A Glimmer of Recovery Ahead?
Despite the bleak quarterly results, Samsung anticipates a gradual recovery in the second half of 2024, with improved chip demand and higher factory utilization rates. However, analysts remain cautious, warning that U.S.-China tech tensions and fluctuating memory prices could continue to weigh on profitability.
Samsung shares dipped 0.8% in Seoul trading following the earnings guidance, reflecting investor concerns over the company’s near-term challenges in the competitive semiconductor market.
