Samsung expects a 56% drop in Q2 operating profit, far short of estimates

Samsung Electronics projected a 56% year-over-year decline in its second-quarter operating profit to 4.6 trillion won, significantly missing analyst estimates of 6.2 trillion won and marking its weakest performance in six quarters. This substantial earnings miss is primarily attributed to slowed AI chip sales, exacerbated by U.S. restrictions on advanced AI chips for China and delays in supplying chips to key customer Nvidia, alongside inventory value adjustments. While the results fuel investor doubts, a gradual recovery is anticipated in Q3, driven by improved high-bandwidth memory (HBM) product shipments to non-Nvidia clients and new phone launches.

Analysis

Samsung Electronics has projected a second-quarter operating profit of 4.6 trillion won, a figure that represents a severe 56% year-over-year decline and falls significantly short of the 6.2 trillion won LSEG SmartEstimate. This marks the company's weakest quarterly profit in six quarters, signaling fundamental challenges. The earnings miss is attributed to a combination of external and internal factors, including a slowdown in AI chip sales exacerbated by U.S. export restrictions to China, and critical delays in supplying high-bandwidth memory (HBM) chips to key customer Nvidia. Furthermore, the company's foundry business earnings were negatively impacted by these same sales restrictions and low utilization rates, leading to inventory value adjustments. While management expects the foundry business's operating loss to narrow in the second half of the year, and analysts forecast a gradual recovery in the third quarter driven by HBM sales to non-Nvidia customers and new phone launches, the immediate results cast significant doubt on Samsung's competitive execution in the high-stakes AI semiconductor market.

Key Decisions for Investors

• Given the substantial earnings miss and negative guidance, investors should anticipate near-term downward pressure on the stock and reassess their cost basis before considering new or additional positions.
• The upcoming detailed earnings release in late July is a critical catalyst; focus specifically on management's commentary regarding HBM chip qualification progress with Nvidia and the sales ramp-up to other customers, as this will validate or undermine the guided Q3 recovery.
• The combination of U.S.-China trade friction and execution delays in supplying a key client like Nvidia highlights significant operational and geopolitical risks, warranting a review of portfolio concentration and the company's competitive standing against peers like TSMC.