Explore why Samsung Electronics faces a profit decline as market challenges impact its financial performance.
Samsung Electronics, the South Korean tech giant, has forecasted a 21% decline in its operating profit for the first quarter of 2025 compared to the same period last year. This downturn is primarily driven by tepid demand for AI chips and persistent losses in its semiconductor manufacturing or foundry business. Being the world’s leading memory chip producer, Samsung finds itself in a period of managerial transition following the unexpected passing of co-CEO Han Jong-Hee in March. The company is set to release its first-quarter financial results on Tuesday.
Since mid-last year, Samsung has faced diminishing chip profits, largely due to falling behind SK Hynix in the high-performance memory chip sector, notably in HBM chips supplied to Nvidia. This has increased Samsung’s reliance on Chinese clients who favor less sophisticated products not restricted by US export regulations. Analysts suggest these Chinese companies have amassed sufficient inventory over the past year, leading to a current reduction in demand. Samsung’s operating profit for January-March is projected to be 5.2 trillion won (approximately $3.62 billion), down from 6.6 trillion won in the same period last year. Conversely, SK Hynix is anticipated to double its profits during the same timeframe.
According to TrendForce, the prices of DRAM chips, commonly used in smartphones and PCs, fell by 25% year-on-year in the first quarter, while NAND flash chip prices plummeted by 50%. Samsung’s significant exposure to the standard chip market has made it more susceptible to these price fluctuations. The company is now focused on redesigning advanced HBM chips for strategic customers, a process requiring time. Additionally, Samsung has reportedly postponed the launch of a new US production facility to 2027 from an initial 2024 timeline, as it has yet to secure substantial production orders.
Meanwhile, Samsung’s mobile and network division anticipates announcing a profit of 3.7 trillion won, up from last year’s 3.5 trillion won. However, US-imposed reciprocal tariffs under President Donald Trump are exacerbating Samsung’s challenges. With a significant dependency on the US market for its smartphones, televisions, laptops, and home appliances, Samsung is grappling with increased production costs.
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