Samsung Chip Arm Logs Big Profit Miss in Sign of Widening Crisis
The pivotal unit reported operating profit of 400 billion won ($288 million) for the June quarter versus analysts' average projection for 2.73 trillion won, hurt by US export controls on high-bandwidth memory chips and losses at its foundry arm.
South Korea's largest company, which gave grim preliminary operating profit and revenue numbers earlier in July, said on Thursday net income came to 4.93 trillion won, missing the analysts' estimate of 6.37 trillion won.
Profit fell after Samsung's foundry arm, which relies in part on Chinese demand, booked a one-time inventory cost as export controls led to unsold AI chips. Usage rates also fell. The profit decline was despite solid demand for high-end memory products for servers, it said.
Operating losses at its foundry unit are expected to narrow in the second half of the year on a gradual recovery in demand, the company said.
Samsung's underwhelming quarterly report comes after the company won a $16.5 billion contract from Tesla Inc. to produce AI chips at an upcoming plant in Taylor, Texas. Its stock is up 10% since news about the agreement broke on Monday, bringing Samsung's gains in July to over 20% and putting the stock on track for its best month in more than four years.
Samsung has been stepping up spending on research and development and front-end capacity in its efforts to catch up with SK Hynix Inc. and Micron Technology Inc. in AI memory chips. At the same time, it's been trying to win orders from large customers like Tesla to revive its ailing foundry division where operating rates have plunged.
A successful implementation of the multi-year deal with Tesla would improve Samsung's prospects for winning more clients and validate its technology for 2-nanometer mass production.
Investors are also looking for clues as to whether Samsung will benefit from Nvidia Corp.'s resumption of sales of its H20 AI chips to China. The Korean memory maker's less advanced HBM3 has been used alongside H20 chips in the past.
Samsung has slowed completion of its Taylor plant, which now is scheduled to start operating in 2026. The company's struggled to win large customers away from the world's biggest contract chipmaker Taiwan Semiconductor Manufacturing Co., which has begun production in Arizona and is ramping up capacity in the US.
Investors remain concerned about Samsung's ability to claw its way into the market for cutting-edge HBM chips, now dominated by SK Hynix. Samsung has struggled to get its latest products certified by Nvidia — providing an unusually long window for SK Hynix to carve out commanding leads in the booming AI memory market.
--With assistance from Mark Anderson.
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