Export control regulations and declining prices adversely impact Samsung's semiconductor earnings
Rewritten Article
Samsung Electronics' chip division faced a tough Q1 as strict US export controls, pricing pressure, and competition ate into its high-end chip sales, costing the company a significant drop in profit.
In an unfavorable quarter, Samsung's chip segment's operating profit plunged by around 40%, amounting to 1.1 trillion won (roughly $770 million). The slide in profit was triggered by a combination of factors: the erosion of average selling prices, a drop in sales of high-bandwidth memory (HBM) chips due to US export restrictions, and some clients delaying orders in anticipation of upcoming enhanced HBM3E products.
Despite the boost provided by Chinese clients stockpiling chips in preparation for US tariffs, these advantages couldn't fully offset the steep decline in profit. According to Hyundai Motor Securities analyst Greg Noh, "Unless there's demand from Nvidia, it's difficult to expect a dramatic improvement in Samsung's chip business."
The South Korean electronics giant is now focusing on ramping up its 12-layer HBM3E product in Q2 to meet the demand from certain clients. However, competition remains steep, given that Samsung trails behind industry leader SK Hynix in providing advanced HBM chips for AI accelerators. This competitive gap has been a drag on Samsung's earnings, with the company investing a record 9 trillion won in research and development over the first quarter, an increase of 16% year-over-year.
The challenging Q1 results come as Samsung enjoyed a resurgence in demand for PC memory and smartphones, two of its key product categories. Apple and Lenovo customers rushed to ship their products to the US before potential tariffs hit, while Samsung's own Galaxy S25 flagship series drove robust earnings. Still, the one-time pretariff gains do little to alleviate long-term concerns about demand.
Geopolitical uncertainty, particularly global trade tensions, makes it difficult to predict Samsung's future performance, the company noted. However, with challenges easing, Samsung anticipates an improvement in the second half of the year.
In addition to facing difficulties in its HBM business, Samsung's foundry business continues to struggle, primarily due to a lack of sizeable orders from major clients. The market is dominated by TSMC, which held a more than two-thirds share of the global foundry market in Q3 last year, according to TrendForce. Samsung's share stands at 9.3%.
To compete, Samsung plans to begin mass production using 2-nanometer processes in Q2 2025, a strategic move aimed at closing the gap with TSMC and capturing some of the high-end logic chipmaking business.
The battle for market dominance in the semiconductor industry is far from over, with Samsung seeking to leverage its HBM3E and R&D investments to stay competitive. However, uncertainties persist as geopolitical tensions and competitive hurdles continue to loom over the tech giant.
- Samsung's HBM3E production ramp-up in Q2 aims to meet client demands and counter industry leader SK Hynix, a move that could shape the competition in AI accelerator HBM chip market.
- Despite stockpiling by Chinese clients to bypass US tariffs, Samsung's chip division witnessed a significant drop in profit, mostly due to US export restrictions affecting HBM chip sales.
- Samsung's focus on technology advancement is evident in its investment in research and development, with a record 9 trillion won spent in Q1 to develop 12-layer HBM3E and 2-nanometer processes, aiming to boost its market share and stay competitive against TSMC.
