Samsung expects second-quarter profits to more than halve as it struggles to capture AI demand

South Korea’s Samsung Electronics on Tuesday predicted a 56% decline in profits for the second quarter as it faces tough competition from AI chip leader Nvidia.

The tech giant stated in its guidance that operating profit for the quarter ending in June was expected to be approximately 4.6 trillion won, down from 10.44 trillion Korean won compared to the previous year.

This forecast represents a larger drop than anticipated by LSEG, which leans towards forecasts from more accurate analysts. According to these estimates, Samsung was projected to achieve an operating profit of 6.26 trillion won ($4.57 billion) for the quarter. Nonetheless, the company fell short of revenue expectations, with a projected 74 trillion won compared to LSEG’s estimated 75.55 trillion won.

As a key player in the global smartphone market and a major producer of memory chips, Samsung has been facing stiff competition from rivals like SK Hynix and Micron in high-bandwidth memory chips, crucial for AI chip development.

“The disappointing earnings can be attributed to continued losses in the foundry business, while the growth in high-margin HBM business is limited this quarter,” commented MS Hwang, research director at Counterpoint Research.

Despite efforts to secure deals with Nvidia for the latest HBM chips, Samsung has reportedly faced delays, impacting its market position. The company’s chip foundry business also faces challenges from competitors like Taiwan Semiconductor Manufacturing Company.

Reuters reported that Samsung had instructed its subsidiaries worldwide to reduce staff by 30% in certain divisions, signaling ongoing challenges within the company.

As Samsung Electronics prepares to release its detailed third-quarter results later this month, investors will be closely monitoring the company’s performance following the challenging second quarter.