In recent years, Samsung Electronics has emerged as a formidable player in the global semiconductor landscape, initially securing a dominant position in various sectors while setting its sights on Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company) for supremacy in the chip-making industry. However, the company has encountered significant challenges, particularly its inability to effectively leverage the burgeoning field of artificial intelligence (AI). Industry analysts suggest that these failures have left Samsung struggling for market share and competitive advantage.
The company’s financial struggles became sharply evident when it reported a staggering 55% decline in operating profit for the second quarter, hitting approximately 4.7 trillion won (around $3.4 billion), a stark drop from the 10.4 trillion won ($7.5 billion) recorded in the previous year. This alarming performance was accompanied by an increase in revenue compared to the same period last year, indicating that while sales may have held up, profitability crumbled under the weight of operational issues.
Samsung’s traditionally thriving chip division, once responsible for two-thirds of the company’s total profits, saw its operating profit nosedive by nearly 94% from the previous year, signaling a dire shift in the company’s fortunes. Executives attributed these disappointing results to a host of factors: significant adjustments in inventory values, underutilization of contract chip manufacturing capabilities, and the detrimental effects of U.S. export restrictions on advanced AI chip sales to China—a critical market for Samsung. This dismal earnings report has intensified worries regarding Samsung’s future, particularly given the competitive pressures it continues to face.
Earlier in the month, Samsung had already warned investors about its bleak performance expectations, which were now confirmed by the recent earnings disclosure. Notably, these worrying trends came on the heels of Samsung’s recent $16.5 billion deal with Tesla, which aimed at producing new chips. Analysts have posited that this partnership could potentially bolster Samsung’s outlook amid adversity. The second half of the year will see Samsung endeavoring to meet increasing market demand for AI-driven innovations while simultaneously enhancing its competitiveness within the advanced semiconductor segment.
Massive shifts are taking place within the semiconductor sector, particularly for Samsung, which has faced significant obstacles in both key areas of its business—the manufacturing of memory and logic chips. Historically, Samsung has been a preeminent player in the memory chip market, but it has experienced setbacks against competitors such as SK Hynix and Micron Technology, particularly in the rapidly expanding high bandwidth memory (HBM) sector. HBM, essential for AI processors developed by giants like Nvidia and AMD, is where competitors have taken the lead.
Additionally, Samsung’s logic semiconductor division trails TSMC both in cutting-edge technology and market share. Recent market data revealed that in the first quarter of the year, SK Hynix had overtaken Samsung as the leader in the global DRAM market, while TSMC extended its lead in logic chip manufacturing with 68% of the market share—leaving Samsung with a mere 8%. Samsung’s difficulties are compounded by management’s miscalculations regarding the accelerating AI demand, with the slow recognition of the industry’s direction being a contributing factor to its struggles.
As for its position in HBM production for Nvidia, which commands a decisive 80% of global HBM demand, Samsung has found itself falling short, unable to secure an advantageous supplier relationship due to repeated failures in meeting performance benchmarks. Meanwhile, though Samsung has secured orders from clients like AMD and Broadcom, its rivals have already begun providing advanced memory chip samples to the market, creating a competitive gap.
The situation is equally dire in Samsung’s logic chip sector, which is central to its strategy of competing with TSMC. Despite considerable investments over recent years, Samsung has failed to gain significant orders for advanced chips, leading to underutilized manufacturing facilities. Industry analysts estimated that Samsung’s contract chipmaking segment faced operational losses of approximately 5.6 trillion won ($4.1 billion) last year—a figure expected to grow to around 6.6 trillion won ($4.8 billion) this year.
Moreover, U.S. restrictions on the sale of advanced chips to China have significantly impacted Samsung’s revenue. These regulatory hurdles have forced delays in shipments to Chinese clients, exacerbating already existing operational challenges. Nonetheless, some shipments have recently cleared the regulatory process, suggesting potential improve in the forthcoming periods.
A bright spot for Samsung came with its recent deal with Tesla for producing new chips intended for self-driving vehicles and humanoid robots, valued at $16.5 billion. This relationship is expected to provide a much-needed boost to Samsung’s beleaguered profitability and can potentially signal a turnaround for the company’s fortunes. The deal follows the postponement of operational timelines for Samsung’s Texas plants, which had experienced difficulty in securing customers.
Some industry experts have heralded this agreement as a critical opportunity for Samsung. It not only opens new avenues for revenue generation but also enhances the utilization of its Texas facilities, thereby improving the company’s overall return
