Samsung Q2 profit plunges 56%, hit by AI chip restrictions
What's the story
Samsung Electronics has reported a massive 56% drop in its operating income for the June quarter. This is the company's first profit decline since 2023. The sharp fall was largely attributed to inventory write-downs after US restrictions on AI chips bound for China. Samsung's preliminary operating profit stood at 4.6 trillion won ($3.3 billion) in Q2, falling short of analysts' expectations.
Market shift
Loss of AI crown to competitors
The disappointing results highlight how Samsung has lost its AI crown to SK Hynix and Micron Technology in the post-ChatGPT infrastructure boom. These companies now sell more of the high-bandwidth memory chips with NVIDIA's AI accelerators. US tech export restrictions to China are also hampering a recovery in Samsung's loss-making contract chipmaking business. However, NVIDIA's shift to a new generation of memory chips could provide an opportunity for Samsung.
Market challenges
Foundry arm heavily reliant on Chinese demand
Samsung's foundry arm, which has been heavily reliant on Chinese demand, recorded a one-time inventory cost on unsold AI chips. The company also reported a decline in usage rates. It now expects operating losses in its contract chipmaking business to narrow in the second half of the year due to gradual recovery in demand.
Certification challenges
Samsung is losing market share to competitors
Samsung is currently trying to get its most advanced product, the 12-layer HBM3E, certified by NVIDIA. Its failure to do so has given SK Hynix a head start in this lucrative sector. Meanwhile, US rival Micron has been making rapid progress, further cutting into Samsung's market share.