Consumer tech giant Samsung faces 21% profit drop amid AI chip market struggles

Samsung is facing a significant profit decline in its first quarter due to challenges in the AI chip market and persistent losses in its contract manufacturing division. The company’s recent leadership changes following its co-CEO’s death come amid intensifying competition from SK Hynix, which has gained an edge in supplying high-performance memory chips to industry leader Nvidia. This struggle highlights the volatility of the semiconductor industry and Samsung’s current disadvantage in the lucrative high-end AI chip market.

The big picture: Samsung Electronics is expected to report a 21% drop in Q1 profit, with analysts projecting 5.2 trillion won ($3.62 billion) compared to 6.6 trillion won in the same period last year.

• The company faces mounting pressure following the unexpected death of co-CEO Han Jong-Hee in late March, which has triggered a management reorganization.
• Samsung’s reliance on Chinese customers seeking less advanced chips that avoid U.S. export restrictions has made its business increasingly vulnerable to market fluctuations.

Behind the numbers: Memory chip prices have plummeted during the first quarter, severely impacting Samsung’s profitability.

• DRAM memory chip prices fell approximately 25% year-over-year in Q1, while NAND flash chip prices dropped around 50% during the same period, according to TrendForce.
• NH Investment & Securities analyst Ryu Young-ho noted that AI chip demand from Chinese customers declined in Q1 after front-loading purchases in the previous quarter to hedge against potential U.S. restrictions.

Key challenges: Samsung’s competitive position in the high-performance AI chip market has weakened significantly compared to its rivals.

• The company has fallen behind SK Hynix in supplying advanced memory chips to Nvidia, the dominant AI chip manufacturer.
• Samsung’s contract chip manufacturing business continues to operate at a loss, with analysts predicting further delays in its U.S. factory startup to 2027 from the previously planned 2026 due to insufficient production orders.

External pressures: Samsung faces additional headwinds from international trade tensions and tariff policies.

• Sweeping reciprocal tariffs imposed by U.S. President Donald Trump are expected to increase costs across Samsung’s product lines, including smartphones, TVs, laptops, and home appliances.
• The company is working on redesigning its most advanced HBM (High Bandwidth Memory) chips to better compete for key clients, though results remain uncertain.