Samsung’s profits decrease due to a drop in sales of AI chips.

Samsung is on track to see a 21% decline in first-quarter profits for 2025, largely driven by weakening sales of artificial intelligence (AI) chips and continued losses in its contract chip production sector. The company, renowned as the biggest memory chip manufacturer globally, is facing leadership transitions following the sudden passing of co-CEO Han Jong-Hee, as per a report by Reuters. Samsung is preparing to unveil its initial earnings report for the first quarter of 2025 on Tuesday.

The financial performance of Samsung has taken a hit due to a downturn in the semiconductor industry starting mid-2024. This challenge is intensified as Samsung competes with SK hynix to supply cutting-edge memory chips to Nvidia, a significant player in AI technology. Samsung’s market standing is under pressure due to its focus on supplying less advanced products to Chinese customers unaffected by US export regulations.

Estimates from LSEG SmartEstimate suggest that Samsung’s operating profit from January to March 2025 may amount to KRW5.2 trillion ($3.62 billion), down from KRW6.6 trillion ($4.5 billion) recorded during the same span in the previous year. The company’s heavy reliance on commodity chips has exposed its profitability to price fluctuations. Data from TrendForce indicates a drop in DRAM memory chip prices of around 25%, while NAND flash chip prices fell by about half during this timeframe.

Comparisons of projected performances suggest that Samsung might lag behind SK hynix, which is benefiting from a surge in demand for AI chips, according to LSEG data. A recent article in The Korea Herald hinted at a further drop in Samsung’s operating profit, forecasting it to fall to KRW4.7 trillion ($3.2 billion) for the first quarter of 2025, marking the third consecutive quarter of profit decline.

Challenges in Samsung’s core semiconductor division stem from subdued demand for IT devices and heightened competition in the global memory market. Moreover, sales of high bandwidth memory (HBM) chips are predicted to decrease due to US limitations on semiconductor exports to China. Samsung’s semiconductor unit might break even or register a loss this quarter, which would be the first instance since early 2024, after a previous streak of losses. Analysts foresee a potential recovery in the second quarter as IT device demand picks up and corporate inventory adjustments wrap up, potentially stabilizing profits.

Samsung’s decision to defer the opening of its new US factory in contract chip production until 2027 is attributed to a dearth of substantial production orders. Current estimates place the first-quarter operating profit for Samsung’s chip division at KRW1.7 trillion ($1.1 billion), compared to KRW1.9 trillion ($1.3 billion) from the previous year. Conversely, the mobile and network business segment may report a profit uptick to KRW3.7 trillion ($2.5 billion) due to increased smartphone shipments and favorable currency exchange rates.

In January, Samsung revealed consolidated revenue of KRW75.8 trillion ($51.5 billion) and an operating profit of KRW6.5 trillion ($4.4 billion) for the quarter ending on December 31, 2024 (Q4 2024). The company’s annual revenue for the whole year stood at KRW300.9 trillion ($204.6 billion), along with an operating profit of KRW32.7 trillion ($22.2 billion).