Samsung second-quarter profit halves, missing expectations

Samsung Electronics reported a second-quarter operating profit of 4.7 trillion Korean won, missing analyst expectations and sharply down from 10.44 trillion won year-over-year, primarily due to a severe slump in its chip business which saw profit plunge to 400 billion won. While overall revenue slightly increased to 74.6 trillion won, bolstered by strong performance in its mobile division with operating profit rising to 3.1 trillion won, the company cited inventory adjustments and export restrictions impacting its chip unit. Looking ahead, Samsung anticipates a boost from a $16.5 billion chip supply contract, reportedly with Tesla, and plans to focus on high-value and AI-driven products.

Analysis

Samsung Electronics reported mixed second-quarter results, with operating profit of 4.7 trillion Korean won missing LSEG SmartEstimate forecasts of 5.33 trillion won and marking a steep decline from 10.44 trillion won in the prior-year period. The primary driver of this underperformance was a significant slump in its Device Solutions (chip) division, where operating profit collapsed to 400 billion won from 6.45 trillion won year-over-year, attributed to inventory adjustments and one-off costs from China-related export restrictions. This weakness was partially buffered by a strong performance in the mobile experience and networks business, which saw its operating profit increase to 3.1 trillion won, up from 2.23 trillion won, on the back of robust sales for its Galaxy S25 and A series devices. Looking ahead, the company's outlook is supported by a significant $16.5 billion chip supply contract, reportedly with Tesla, and a strategic focus on meeting growing demand for high-value-added and AI-driven semiconductors, which presents a clear pathway to recovery for its foundry business.

Key Decisions for Investors

• Investors should closely monitor the recovery of the Device Solutions division, as its profit plunge from 6.45 trillion to 400 billion won year-over-year is the primary driver of the earnings miss and will be key to a rebound in overall corporate profitability.
• Consider the long-term growth potential from the confirmed $16.5 billion foundry contract, reportedly with Tesla, and the company's strategic focus on high-value AI-related semiconductors, which could offset current cyclical weakness.
• The stark contrast between the struggling chip division and the outperforming mobile unit creates a complex valuation picture; it may be prudent to assess if the market has fully priced in both the current semiconductor headwinds and the future growth catalysts from AI and foundry contracts.