Seoul: Samsung Electronics Co. reported on Thursday a significant drop of nearly 50 percent in its net income for the second quarter, primarily attributed to its semiconductor division's weakest earnings in over a year due to low demand for high bandwidth memory (HBM). The company's regulatory filing showed a net income of 5.11 trillion won (US$3.7 billion) for the April-June period, a sharp decline from 9.84 trillion won recorded a year prior.
According to Yonhap News Agency, the reported earnings fell short of market expectations, with analysts predicting an average net profit of 7.29 trillion won, as per a survey by Yonhap Infomax. Operating profit was recorded at 4.67 trillion won, marking a decrease of 55.2 percent year-on-year, whereas revenue saw a slight increase of 0.7 percent, reaching 74.56 trillion won.
The semiconductor division's operating profit plummeted to 400 billion won, the lowest since Q4 2023, when it experienced a 2 trillion-won operating loss. Samsung attributed this weak performance to one-off costs, including inventory value adjustments. Despite the low profit, chip sales increased by 11 percent on-year to 27.9 trillion won, driven by demand for premium server chips and an uptick in foundry orders.
Samsung's main memory business showed stable growth, boosted by sales of HBM3E products and memory for data center servers. However, the fabless system large scale integration (LSI) segment continued to grapple with low profitability, and the foundry business's profit worsened due to inventory adjustments linked to U.S. sanctions on AI chip exports to China.
The DX division, encompassing mobile, TV, and home appliance sectors, witnessed a 16 percent decline in sales on-year to 43.6 trillion won amid intensified competition, though it reported an operating profit of 3.3 trillion won. The mobile unit achieved sales of 29.2 trillion won and an operating profit of 3.1 trillion won, fueled by steady sales of the Galaxy S25 series smartphones launched in the first quarter.
The TV segment saw improved sales of premium products like Neo QLED and OLED TVs; however, overall earnings suffered from tepid demand and heightened competition. Looking ahead to the second half, Samsung Electronics anticipates a recovery in the global IT market, led by AI and robotics, despite ongoing trade uncertainties and geopolitical risks.
The chip division aims to meet the growing demand for high-value and AI-driven products, such as HBM, and enhance its competitiveness in advanced semiconductor technologies. Efforts will also focus on boosting sales of high-density and high-performance SSDs to align with the rising demand for chips for AI data centers. The mobile division plans to sustain momentum by focusing on newly released foldable smartphones.
Analysts expect Samsung Electronics' earnings to rebound in the second half. A recent survey by Yonhap Infomax forecasts the company to achieve 81.4 trillion won in sales and 8.3 trillion won in operating profit for the July-December period.
Commenting on the Korea-U.S. tariff agreement announced earlier, Samsung Electronics expressed that the deal could reduce economic uncertainty. "We will monitor further negotiations on the specifics of the agreement and devise responsive measures accordingly," the company stated during its earnings call.
Samsung is also preparing countermeasures for potential outcomes from the U.S.' ongoing investigation into semiconductor imports, which could lead to additional tariffs. The South Korean government assured that tariffs on South Korean chips and drugs would not be harsher than those imposed on other countries.
Regarding the recent 22.8 trillion-won foundry contract with Tesla Inc., Samsung plans to increase facility investments next year to support the order. Samsung Electronics' shares fell 1.38 percent to 71,600 won on the main bourse by 11:25 a.m., underperforming the broader KOSPI's 0.07 percent decrease. The earnings report was released before the market opened.