South Korean tech giant Samsung Electronics is expected to report a 21% year-on-year decline in its first-quarter profit to 5.2 trillion won (approximately $3.62 billion) on Tuesday. This profit slump is primarily attributed to weak AI chip sales and continued losses in its contract chip manufacturing business.
Samsung Electronics, the world's largest memory chip manufacturer, has seen its chip profits decline since last year. Samsung has lagged behind its main competitor, SK Hynix, in supplying high-performance memory chips, particularly to AI chip leader Nvidia. Failure to adapt quickly to market changes has impacted Samsung's competitiveness in the high-end market, forcing it to rely more heavily on Chinese clients for lower-end products that are not subject to US export restrictions.
According to NH Investment & Securities analyst Ryu Young-ho, declining demand for AI chips from Chinese clients in the first quarter is linked to expectations of further US sales restrictions in the previous quarter. He noted that Samsung's share of HBM (High Bandwidth Memory) chips in overall DRAM (Dynamic Random-Access Memory) shipments may have slightly decreased, further impacting the profitability of its DRAM business.
Furthermore, Samsung's contract chip manufacturing business faces challenges, with the commissioning of its new US plant delayed from 2026 to 2027 due to a lack of significant production orders. This delay will continue to keep the business in the red. Meanwhile, Samsung's mobile and network business is expected to see profit growth, increasing from 3.5 trillion won last year to 3.7 trillion won, thanks to increased smartphone shipments and benefits from currency depreciation.
In terms of market prices, DRAM memory chip prices fell by about 25% year-on-year, while NAND flash memory chip prices dropped by approximately 50%. This price volatility further challenges Samsung's profitability.
To counter the unfavorable market environment, Samsung may need to diversify its production base; however, such a shift cannot be achieved in the short term. Continued US tariffs on consumer electronics, such as smartphones, will inevitably impact consumer demand.
Key Highlights:
💼 Samsung Electronics' first-quarter profit is projected to fall 21% to 5.2 trillion won, mainly due to weak AI chip sales and losses in contract manufacturing.
📉 Declining demand for AI chips from Chinese clients in Q1 may impact Samsung's DRAM profitability.
🏭 Samsung's new US plant commissioning is delayed to 2027, resulting in continued losses in its contract manufacturing business.
