Samsung profit plunges as it falls behind in AI-chip race
What's the story
Samsung Electronics is facing major challenges. The company's second-quarter operating profit has plunged by 55% to 4.7 trillion won ($3.4 billion), down from 10.4 trillion won ($7.5 billion) last year. This decline is mainly due to its failure to capitalize on the artificial intelligence (AI) boom and subsequent market share losses, as well as inventory value adjustments, and low utilization rates in its contract chipmaking business US export controls on advanced AI chips to China have also added pressure.
Division downturn
Chip division operating profit shrank by nearly 94%
Samsung's chip division, a major contributor to its overall profit, has been hit hard. Once a profit powerhouse, contributing nearly two-thirds of the company's total earnings, the operating profit for this division shrank by nearly 94% from April to June compared to last year. The disappointing earnings report has raised concerns about the future of the South Korean tech giant.
Market competition
Losing ground to rivals in memory, logic chips
Samsung has been facing tough competition in both memory and logic chips, its two main revenue streams. The company has lost ground to rivals like SK Hynix and Micron Technology in the memory chip market. Meanwhile, its logic semiconductor business trails industry leader TSMC in cutting-edge chip technologies and market share.
Supply issues
Missed opportunity with NVIDIA and US export restrictions impact
Samsung has also missed out on supplying its most advanced high-bandwidth memory (HBM) product to NVIDIA, which accounted for nearly 80% of global HBM demand last year. The product has repeatedly failed NVIDIA's performance tests. Moreover, US restrictions on the sale of advanced chips to China have affected Samsung's revenue as shipments to Chinese clients were halted pending regulatory review.
Information
Tesla deal may improve Samsung's outlook
Despite these challenges, Samsung recently announced a $16.5 billion deal with Tesla to produce its new chips. This partnership is expected to improve Samsung's outlook as it plans to meet rising demand for high-value and AI-driven products while strengthening competitiveness in advanced semiconductors.
Deal impact
It boosts market sentiment toward Samsung's chip business
Samsung's deal with Tesla to produce its new chips for self-driving cars and humanoid robots is a major boost. The agreement will be fulfilled at Samsung's Texas plant, which was initially scheduled to start operations in 2024 but was pushed back to 2026. Despite mass production for the Tesla project not starting until 2027, the deal has improved market sentiment toward Samsung's chip business.