Samsung’s Q2 operating profit halves amid sluggish chip sales

Samsung Electronics Co.'s operating profit in the second quarter missed market expectations, with a 56% on-year fall, as its mainstay semiconductor business remained sluggish amid delayed deliveries of its high bandwidth memory (HBM) chips to the world’s largest artificial intelligence chip maker, Nvidia Corp.

South Korea’s most valuable company is expected to shore up its earnings in the second half with mass production of the sixth-generation HBM chip – HBM4 – and the release of its premium foldable phone series – Galaxy Z Fold and Z Flip 7.

According to the company’s preliminary earnings guidance on Tuesday, the South Korean memory chip giant projected 4.6 trillion won ($3.4 billion) in operating profit in the April-June quarter, down 55.9% from the same period last year and 31.2% from the prior quarter.

The result came in below the market consensus of 6.7 trillion won compiled by Yonhap Infomax, a Seoul-based financial information provider.

This marks the first time Samsung’s operating profit has dipped below 5 trillion won since the fourth quarter of 2023, when it reported 2.8 trillion won. This is also the lowest second-quarter profit in two years.

Sales reached 74 trillion won, down 0.1% year over year and 6.5% quarter over quarter.  

The company blamed a large one-off inventory loss reserve – a financial allowance set aside to account for potential losses in the value of inventory – at the Device Solutions (DS) unit, which oversees the company’s semiconductor business, for the bigger-than-expected operating shortfall.

A sharp gain in the Korean currency against the US dollar last month, coupled with US tariffs, also reduced the export value of its products across divisions, Samsung added.

The won averaged 1,365.15 per dollar in June versus 1,457.92 in March, according to data from the Bank of Korea.

The company did not disclose detailed performance of each division, but brokerages forecast sales of Samsung’s other core product, smartphones, may have plateaued in the quarter due to the waning impact of its new flagship model, the Galaxy S25, released earlier this year. TV sales also remained stagnant due to weak demand.   

Market analysts project the DS division’s operating profit to come below 2 trillion won in the second quarter.

Samsung has not yet passed Nvidia’s quality test for its HBM chips, although it has supplied some to other clients, such as Advanced Micro Devices Inc. (AMD).

The Korean chipmaker also suffered a setback after Nvidia chose Micron as its second supplier of HBM3E, the fifth generation of HBM, following SK Hynix Inc., its crosstown rival dominating the global HBM market.

A REBOUND IN BOTH MEMORY AND NON-MEMORY

Samsung expects an improvement in earnings later this year, citing ongoing individual quality tests of its HBM chips with different clients and shipments of its premium chips to clients other than Nvidia.

It plans to catch up to its rivals by mass-producing the sixth-generation HBM chip – HBM4 – in the second half.

It also plans to begin mass production of 1c DRAM at the end of this year, after the latest DRAM passed internal quality tests on June 30.

The 1c DRAM, used as a core die, or a component for HBM4 and DRAM. The memory is an advanced model of the 1b DRAM – the fifth-generation 10-nanometer DRAM mainly used by its HBM competitors.

In its non-memory business, it also expects a recovery in utilization rates on improved demand in the latter half. 

After losing Google LLC, its long-time foundry customer to TSMC, the world’s largest contract chipmaker, Samsung secured Qualcomm Inc. as a new foundry customer.

Qualcomm is said to be considering outsourcing the manufacturing of next-generation application processors (APs) to be embedded in Samsung's Galaxy phones to Samsung, using the Korean chip giant's thinnest chip fabrication process, 2 nanometers.

BOTTOM IN Q2  

Market analysts likewise believe Samsung’s business may have hit bottom in the second quarter, expecting a recovery in its mainstay memory business in the latter half.

“Samsung’s operating profit is expected to recover gradually after bottoming out in the second quarter,” said Roh Geun-chang, research head at Hyundai Motor Securities Co.

“The loss is expected to narrow starting in the third quarter on a rise in HBM sales following the supply of the 12-layer HBM3E to AMD, new foundry contracts and improved cost efficiency.“

Its smartphone sales are also expected to rebound following the launch of its new foldable models – Galaxy Z Fold and Z Flip 7 – which will be unveiled at its Galaxy Unpacked event in New York later today.

For the Galaxy Z Flip7, Samsung will use its in-house application processor (AP), the Exynos 2500, produced with the 3 nm process, for models to be sold in Korea.

In the second half, it plans to begin mass production of the Exynos 2600, a revamped application processor, for the Galaxy S26 series – set to launch in 2026, using the 2 nm node.

In a separate filing on Tuesday, the company announced a share buyback plan worth 3.9 trillion won, covering 56,888,092 common shares and 7,834,553 preferred shares, to be repurchased in the market between July 9 and October 8. It will pay 61,700 won per common share and 51,300 won per preferred share.

Of the total, Samsung plans to cancel 2.8 trillion won worth of shares later to enhance shareholder value, while the remaining shares will be allocated as employee compensation.

Samsung Electronics shares ended down 0.5% at 61,400 won on Tuesday.

(Updated with Samsung’s plans to prop up its earnings with new HBM production and its foldable phone launch in the latter part of the story. The share buyback program is also added.)

Write to Sookyung Seo at skseo@hankyung.com

Jennifer Nicholson-Breen edited this article.