Samsung chips profit hurt by export controls and falling prices

SEOUL – Samsung Electronics’ chip business reported a roughly 40 per cent drop in profit after US export controls dented sales of its high-end chips even as it seeks to catch up in the lucrative artificial intelligence (AI) memory arena.

March-quarter operating profit at Samsung’s chip segment tumbled to 1.1 trillion won (S$1 billion) on erosion in average selling price as well as a drop in sales of its key high-bandwidth memory (HBM) chips due to export controls, according to a company statement. Some clients also deferred orders in anticipation of upcoming enhanced HBM3E products, it said.

Those outweighed a boost from Chinese customers stockpiling chip supplies ahead of US tariffs. 

“Samsung is planning to ramp up the enhanced 12-layer HBM3E product in the second quarter to meet demand from some clients,” said Mr Greg Noh, an analyst with Hyundai Motor Securities. “But unless there is demand from Nvidia, it’s difficult to expect dramatic improvement in the chip business.”

South Korea’s largest company faces mounting challenges in its HBM business. The company has struggled for months to secure Nvidia’s final nod for its most advanced HBM products, which are today the most lucrative segment for memory makers. Its crosstown rival SK Hynix retains the top position in providing these chips enabling AI accelerators.

That catch-up effort continues to eat away at Samsung’s earnings. It spent 9 trillion won in research and development in its fiscal first quarter, up 16 per cent from a year ago.

The grim numbers come even as Samsung benefited from a rebound in demand for PC memory and smartphones, two of its key sales drivers. 

Customers from Apple to Lenovo Group hastened shipments to the United States over the first quarter of 2025 to pre-empt tariffs by the Trump administration. Its own Galaxy S25 flagship smartphone series also buoyed earnings. That helped boost net income to 8.03 trillion won, above estimates.

But such one-time pre-tariff gains do little to assuage concern about long-term demand. Global trade tensions “make it difficult to predict future performance”, the company said in a statement. If uncertainties fade, Samsung expects performance to improve in the second half of the year, it said.

Analysts including Canalys see the first-quarter surge in shipments as an acceleration of deliveries from later in the year - and any intensification in US-China tensions could put more pressure on global trade.

Within Samsung’s semiconductor division, the contract chipmaking business has struggled, weighed down by a lack of significant orders from major clients. This has made it harder to compete with Taiwan Semiconductor Manufacturing Co (TSMC), which held a dominant market share of almost two-thirds of the global foundry market in the third quarter of 2024, according to TrendForce. Samsung’s share stood at 9.3 per cent.

That foundry business now aims to begin mass production using 2-nanometer processes in the June quarter, a key step in its bid to catch up to TSMC and capture some of the high-end logic chipmaking business. BLOOMBERG