Samsung flags 56% profit drop in Q2 as AI chip woes and US export curbs hit semiconductor business

Samsung Electronics is bracing for a staggering 56% plunge in its operating profit for the second quarter, attributing this decline to sluggish sales of AI chips and escalating US export limitations concerning advanced semiconductor technology to China. This profit forecast has raised fresh alarms about the South Korean tech titan's capacity to revive its beleaguered semiconductor sector. In a preliminary earnings announcement made on Tuesday, Samsung predicted its operating profit for the April to June timeframe to be around 4.6 trillion won, or roughly $3.36 billion. This figure falls significantly short of analysts' expectations and represents the company's lowest profit in six quarters. This marks a stark decline from 10.4 trillion won during the same period last year and down from 6.7 trillion won in the preceding quarter. The world's leading memory chip manufacturer has attributed this downturn primarily to the ramifications of US export controls and losses related to inventory within its Device Solutions division. "The DS Division experienced a decrease in profit quarter-on-quarter due to adjustments in inventory values and the repercussions of US restrictions on advanced AI chips intended for China," Samsung stated in a press release. While competitors like SK Hynix and Micron have reaped the benefits of surging demand fueled by AI integration in the US, Samsung's significant dependence on the Chinese market has turned into a disadvantage as export controls tighten. Analysts have also highlighted delays in the delivery of high-bandwidth memory (HBM) chips to Nvidia, a key partner, as another contributor to the earnings downturn. Earlier this year, Samsung indicated that substantial advancements on its latest 12-layer HBM 3E chips were anticipated by June. However, the company has not provided an updated timeline for delivering these chips to Nvidia, only mentioning that they remain under customer evaluation. Additionally, Samsung's foundry operations faced challenges, with the company citing reduced utilization rates and inventory adjustments triggered by US trade restrictions. However, it expects a narrower operating loss for its foundry division in the latter half of the year as demand is projected to recover. Despite this bleak outlook, Samsung's shares saw a slight increase of 0.4% in early trading on the KOSPI, although this is still behind the benchmark index's 1.5% rise. The company also revealed plans for a share buyback program valued at 3.9 trillion won, as part of a broader 10 trillion won initiative launched last November. Revenue for the quarter is anticipated to experience a minimal dip of 0.1%, bringing it to 74 trillion won compared to the same period last year. Samsung is set to release detailed financial results, along with a breakdown across its various business units, on July 31.