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

Samsung Electronics forecast a 56% year-over-year decline in Q2 operating profit to 4.6 trillion won, significantly missing analyst estimates, primarily due to its struggle to capitalize on the high-bandwidth memory (HBM) market for AI chips. The company lags competitors like SK Hynix in securing crucial HBM supply for AI leader Nvidia, with reported delays in its advanced HBM certification by Nvidia capping significant near-term upside. This profit slump is further exacerbated by ongoing operating losses in its foundry business and weak orders amid stiff competition.

Analysis

Samsung Electronics has issued a significantly weak second-quarter operating profit forecast, projecting a 56% year-over-year decline to 4.6 trillion won. This figure starkly misses LSEG smart estimates of 6.26 trillion won, signaling deeper operational challenges than the market anticipated. The primary driver for this underperformance is the company's inability to penetrate the high-margin, high-bandwidth memory (HBM) market for AI accelerators, compounded by persistent operating losses in its foundry business. While competitors like SK Hynix have successfully secured their role as key HBM suppliers to AI market leader Nvidia, Samsung has reportedly faced a delay in its HBM chip certification, pushing potential approval to at least September. This delay effectively caps near-term earnings upside, given Nvidia constitutes an estimated 70% of global HBM demand. A smaller supply win with AMD is unlikely to materially impact second-quarter results due to the timing of production. Furthermore, Samsung's chip foundry division continues to struggle against intense competition from Taiwan Semiconductor Manufacturing Company, facing weak order flow and adding to the company's profitability pressures.

Key Decisions for Investors

• Investors should recognize the material risk to Samsung's near-term earnings, as its delayed entry into the Nvidia HBM supply chain isolates it from a critical, high-growth revenue stream.
• Monitor the status of Samsung's HBM chip certification with Nvidia closely, as a successful qualification by September would be a significant positive catalyst, while further delays would reinforce the current negative outlook.
• Given the identified operational struggles in both HBM and foundry divisions, consider the relative strength of competitors like SK Hynix and TSMC, which appear better positioned to capitalize on the current AI hardware cycle.
• Evaluate any long position in Samsung with caution, factoring in the dual headwinds and the lack of immediate contribution from its recent deal with AMD.