Samsung Electronics' second-quarter profit may plummet 39%, weak AI chip sales drag down performance

Samsung Electronics is expected to report a 39% plunge in second-quarter operating profit on Tuesday, mainly due to delays in supplying advanced memory chips to AI chip leader Nvidia (NVDA.O). The world's largest memory chip maker is expected to post an operating profit of 6.3 trillion won (about $4.62 billion) in April-June, the lowest profit level in six quarters, according to LSEG SmartEstimate data.

The South Korean tech giant's continued weak financial performance has heightened investor concerns about whether it can catch up with smaller rivals in developing high-bandwidth memory (HBM) chips needed for artificial intelligence data centers. Its key rivals SK Hynix and Micron (MU.O) have benefited from strong demand for AI memory chips, but Samsung's performance growth has been constrained by its reliance on the Chinese market - the United States has imposed strict restrictions on advanced chip sales to the country.

Analysts said Samsung's efforts to obtain Nvidia's certification for its latest HBM chips were slow. "As sales restrictions persist and Samsung has not yet started supplying HBM3E 12-layer stacked chips to Nvidia, its HBM revenue is likely to remain flat in the second quarter," said Ryu Young-ho, senior analyst at NH Investment Securities. He expects Samsung's shipments of new chips to Nvidia to be modest this year.

Samsung had expected in March to make substantial progress with its HBM chips as early as June, but declined to comment on whether the HBM3E 12-layer chips had passed Nvidia's certification process. However, AMD said in June that Samsung had started supplying it with the chips. Analysts believe that Samsung's smartphone sales are likely to remain solid, driven by stockpiling demand triggered by the potential U.S. tariffs on imported smartphones.

Many core businesses, including chips, smartphones and home appliances, are still facing uncertainties from a number of U.S. trade policies: former President Trump proposed a 25% tariff on non-U.S.-made smartphones; July 9 is the deadline for the U.S. to implement "reciprocal" tariffs on several trading partners. The U.S. government is also considering revoking authorizations for global chipmakers such as Samsung, which would make it more difficult for them to obtain U.S. technology in Chinese factories.

Samsung's shares have risen about 19% this year, far underperforming the 27.3% gain in the Korea Composite Stock Price Index, making it the worst performer among major memory chipmakers this year.