Samsung’s Earnings Take a Nosedive: What’s Behind the Big Drop?

Samsung Electronics forecast its earnings to fall significantly short of market expectations in the second quarter this year, dragged down by weak semiconductor sales, unexpected inventory-related costs and growing uncertainties including US tariffs.

In its earnings guidance released Tuesday, the tech giant projected consolidated sales of 74 trillion KRW (54.1 billion USD) for the April-June period, a slight 0.09 percent year-over-year decrease. More alarmingly, the operating profit estimate plummeted by 55.9 percent to approximately 4.6 trillion KRW (3.4 billion USD).

These figures fell well below market consensus, which had anticipated 76.2 trillion KRW (55.7 billion USD) in sales and 6.2 trillion KRW (4.5 billion USD) in profit, according to estimates compiled by market intelligence firm FnGuide.

While Samsung did not provide a detailed breakdown of earnings by business segment, the company explained that its Device Solution division, overseeing the semiconductor business, experienced a profit decline from the previous quarter. This was attributed to inventory-related costs and the impact of US export controls on advanced AI chips to China.

The chip sector’s weak performance was further exacerbated by substantial inventory valuation losses.

Industry insiders suggest that Samsung likely cleared out older high-bandwidth memory products — such as those manufactured before the advanced 12-high HBM3E currently undergoing Nvidia Corporation’s quality testing — or chips that became difficult to sell due to US export restrictions to China.

Anticipating potential losses from the devaluation of previously manufactured chips, Samsung appears to have preemptively booked these costs in the second quarter.

The semiconductor giant also seems to have incurred losses in its non-memory business. Sales fell short of expectations due to US government export controls and related inventory write-downs, affecting shipments of lucrative HBM chips.

Samsung stated that improved HBM products are currently being evaluated and shipped to customers. While the non-memory business continued to struggle with low line utilization, the company expects losses to narrow in the second half as utilization improves in line with gradual demand recovery.

Securities firms estimate that the DS Division’s Q2 operating profit may have dipped below 1 trillion KRW (730 million USD).

\”Samsung’s HBM performance in Q2 likely fell short of expectations, while NAND flash prices declined compared to the previous quarter, widening losses,\” said Chae Min-sook, an analyst at Korea Investment & Securities.

\”The foundry business is also expected to have recorded a loss similar to Q1, and the sharp drop in the won-dollar exchange rate since June will likely have a negative impact on both revenue and operating profit.\”

US tariff hikes also appear to have contributed to Samsung’s poor Q2 results. Shifting US trade policies and weakening global consumer demand seem to have affected the company’s consumer electronics and TV businesses.

While market expectations for the tech giant’s third-quarter performance remain mixed, all eyes are on whether Samsung can secure a rebound with the launch of its new foldable smartphones — the Galaxy Z Fold 7 and Galaxy Z Flip 7 — set for Wednesday.

The new smartphone series features Samsung’s in-house Exynos 2500 chip, raising hopes that it could not only boost mobile earnings but also help revive the company’s struggling logic chip and foundry businesses.

Meanwhile, Samsung also announced a 3.91 trillion KRW (2.86 billion USD) share buyback program, with 2.81 trillion KRW (2.05 billion USD) worth of shares to be canceled to enhance shareholder value. The remaining 1.1 trillion KRW (800 million USD) will be used for employee bonuses, the company said.

Samsung is scheduled to release its full financial results, which include net earnings and performance breakdowns by business division, on July 31.