Samsung expects second-quarter profits to more than halve as it struggles to capture AI demand

Samsung Electronics, based in South Korea, has projected a staggering 56% decline in its profits for the second quarter, largely due to challenges in meeting the rising demand for AI chips, particularly from industry leader Nvidia. The company anticipates its operating profit for the June quarter to be approximately 4.6 trillion won, a significant drop from 10.44 trillion won recorded in the same period last year. This forecast represents a more significant decrease than analysts' smart estimates, which had suggested an operating profit of around 6.26 trillion won ($4.57 billion). In terms of revenue, Samsung expects to generate around 74 trillion won, falling short of the smart estimates of 75.55 trillion won. As a dominant player in the global smartphone sector and one of the largest manufacturers of memory chips used in various devices, Samsung is currently facing intense competition from rivals like SK Hynix and Micron, particularly in the high-bandwidth memory (HBM) segment crucial for AI applications. MS Hwang, Research Director at Counterpoint Research, commented on the company's earnings guidance, attributing the disappointing results to ongoing losses in the foundry business, while the anticipated growth in the high-margin HBM sector remains limited this quarter. Notably, SK Hynix has emerged as a key supplier to Nvidia in the HBM market. Despite efforts to obtain certification for its latest HBM chips from Nvidia, reports suggest that Samsung’s timeline for achieving this has been postponed until at least September. The company has not provided updates regarding its negotiations with Nvidia. Ray Wang, a Research Director at Futurum Group, emphasized that Samsung has not yet met Nvidia's qualification standards for its advanced HBM technology, which significantly affects its near-term prospects, especially since Nvidia constitutes around 70% of the global HBM demand. While Samsung has secured some HBM supply for AI processors from AMD, the benefits from this deal are unlikely to reflect in the second-quarter results due to production timing issues. Additionally, the company’s foundry division continues to experience weak orders and stiff competition from Taiwan Semiconductor Manufacturing Company, further complicating its financial outlook. In a related move, sources indicate that Samsung has instructed its global subsidiaries to reduce staff by 30% in certain divisions, highlighting the extent of the challenges it faces.