Decline in Samsung's Q2 earnings due to chip industry downturn and impact of tariffs
Samsung Electronics, the South Korean tech giant, is bracing for a substantial drop in earnings for the second quarter of this year, according to recent forecasts. The company's earnings are expected to plunge by 55.9%, with an estimated operating profit of around 4.6 trillion won.
The primary reasons behind this earnings miss are a combination of global market conditions, regulatory challenges, and issues within specific business divisions.
In the semiconductor sector, economic downturns and global market uncertainties can significantly impact demand for semiconductors. Additionally, trade restrictions and export controls, such as those imposed by the U.S. on exports to certain countries, can severely limit sales opportunities.
Samsung's Device Solution division, which includes semiconductor operations, has been affected by technology advancements and competition, keeping pace with rivals in terms of innovation and cost. In the second quarter, the division's profit is attributed to inventory-related costs and the impact of US export controls on advanced AI chips to China.
The non-memory business, such as logic and system-on-chip (SoC) production, is influenced by demand fluctuations from major customers in industries like automotive and consumer electronics. In this case, the foundry business is expected to have recorded a loss similar to Q1.
Moreover, the decline in Samsung's Device Solution division's profit is also linked to the US government export controls, which appear to have contributed to the poor Q2 results. Anticipating potential losses from the devaluation of the previously manufactured chips, Samsung appears to have preemptively booked these costs in the second quarter.
To offset the earnings miss, Samsung has launched a W3.91 trillion buyback programme, with 2.81 trillion won worth of shares to be cancelled to enhance shareholder value. The remaining 1.1 trillion won will be used for employee bonuses, as stated by the company.
Samsung's HBM performance in Q2 is likely to have fallen short of expectations, with NAND flash prices declining compared to the previous quarter, widening losses for the company.
Despite these challenges, Samsung is set to launch its new foldable smartphones - the Galaxy Z Fold 7 and Galaxy Z Flip 7 - on Wednesday, with hopes that they could boost mobile earnings and help revive the company's struggling logic chip and foundry businesses.
Samsung is scheduled to release its full financial results on July 31. The company will provide a more detailed analysis of the factors that influenced its Q2 performance during this announcement.
Finance and technology sectors are among the factors contributing to Samsung Electronics' anticipated drop in earnings for Q2, as the company faces regulatory challenges, technology advancements, and competition, along with global market conditions impacting the semiconductor industry, trade restrictions, and US export controls. The Device Solution division, including semiconductor operations, has been affected by US export controls on advanced AI chips to China and technology advancements.
