Samsung profits fall as AI chip sales weaken

Samsung is predicted to report a 21% decrease in first-quarter profit for 2025. (Credit: Valeriya Zankovych/Shutterstock)

Samsung Electronics is set to report a 21% decrease in first-quarter profits, primarily due to declining AI chip sales and ongoing losses in its contract chip manufacturing segment. The company, recognised as the largest global memory chip producer, is dealing with leadership changes following the unexpected death of co-CEO Han Jong-Hee, reported Reuters. The South Korean conglomerate plans to release its preliminary earnings report for Q1 2025 on Tuesday.

Its financial results have been adversely affected by a downturn in the semiconductor business since mid-2024. This comes as Samsung struggles to compete with SK hynix in supplying high-performance memory chips to Nvidia, a key player in AI technology. Samsung’s market position is further challenged by its reliance on less advanced products for Chinese clients unaffected by US export restrictions.

Projections from LSEG SmartEstimate suggest Samsung’s operating profit for January through March 2025 will be KRW5.2 trillion ($3.62bn), down from KRW6.6 trillion ($4.5bn) in the same period last year. The company’s significant reliance on commodity chips has made its profitability vulnerable to price fluctuations. TrendForce data indicates a drop in DRAM memory chip prices by approximately 25%, while NAND flash chip prices fell about 50% during this period.

Anticipated performance comparisons indicate that Samsung may fall behind SK hynix, which benefits from increasing demand for AI chips, according to LSEG data. A recent report in The Korea Herald suggested Samsung’s operating profit is expected to decline further, reaching KRW4.7 trillion ($3.2bn) for Q1 2025, marking a third consecutive quarterly profit drop.

Obstacles in core semiconductor business

Samsung’s core semiconductor business faces challenges from weak demand for information technology devices and heightened competition within the global memory market. Additionally, sales of high bandwidth memory (HBM) chips are forecasted to decrease due to US restrictions on semiconductor exports to China.

Samsung’s semiconductor division might either break even or post a loss this quarter, which will be the first such occurrence since early 2024 after ending a previous losing streak. Analysts predict a possible recovery in the second quarter as IT device demand shows signs of improvement and corporate inventory adjustments conclude, potentially stabilising profits.

Samsung has decided to delay the opening of its new US factory in the contract chip manufacturing sector until 2027, citing a lack of significant production orders as the reason for this postponement. Current estimates place Q1 operating profit for Samsung’s chip division at KRW1.7 trillion ($1.1bn), compared to KRW1.9 trillion ($1.3bn) last year. Conversely, the mobile and network business may report a profit increase to KRW3.7 trillion ($2.5bn) due to higher smartphone shipments and favourable currency exchanges.

In January, Samsung announced consolidated revenue of KRW75.8 trillion ($51.5bn) and an operating profit of KRW6.5 trillion ($4.4bn) for the quarter ending 31 December 2024 (Q4 2024). Over the entire year, the company reported annual revenue of KRW300.9 trillion ($204.6bn) alongside an operating profit of KRW32.7 trillion ($22.2bn).

Read more: Samsung faces profit slowdown amid AI chip supply delays and weak memory market