Samsung's chip business profit plummeted 94% in Q2! HBM's market share plummeted and fell far behind the AI competition

The Zhitong Finance App learned that Samsung Electronics released its second-quarter earnings report on Thursday, and its chip division's Q2 profit plummeted 94%, far short of market expectations. This data highlights that the world's largest memory chip manufacturer is mired in the slump in the industry. As Samsung's core business, the chip division's poor performance reveals that it has fallen far behind in the lucrative field of artificial intelligence: in the high-end memory chip market, SK Hynix has a leading position; in the foundry field, TSM.US has a firm grip on the dominance.

The chip division reported quarterly operating profit of 400 billion won (about 288 million US dollars), a record low in six quarters, far below analysts' average forecast of 2.73 trillion won. Samsung said that although demand for high-end storage products for servers is steady, due to US export controls, sales of artificial intelligence chips for the Chinese market have been slow in its OEM business, and the resulting one-time inventory costs have become the main reason for the decline in profits.

Samsung had forecast weak preliminary operating profit and revenue data in July. The current financial report shows that second-quarter revenue was 74.57 trillion won (about 53.509 billion US dollars), up 0.67% year on year; net profit to mother was 4.9 trillion won (approximately US$3.541 billion), down 48.83% year on year, lower than analysts' expectations of 6.37 trillion won.

In early trading on Thursday, the stock price of South Korea's largest company once fell 1.8% in the Seoul stock market.

CounterPoint's research director Mshwang pointed out that this poor performance reflects Samsung's poor performance in the high-bandwidth memory (HBM) field. He said that in the second quarter of 2024, Samsung's share of the global HBM market has fallen from more than 40% in the first quarter to 17%.

“This means that in the second quarter, Samsung even lagged behind Micron Technology (MU.US) and fell to third place.” he added.

Samsung says it will “respond positively” to the market's demand for higher density storage products. Meanwhile, as demand gradually recovers in the second half of the year, its foundry division's operating losses are expected to narrow.

Prior to that, Samsung had just won a contract worth 16.5 billion US dollars from Tesla (TSLA.US) to manufacture artificial intelligence chips for Tesla at a new plant in Tyler, Texas. After the news was announced at the beginning of this week, Samsung's stock price rose in response, causing a cumulative increase of more than 20% in July, which is expected to be the best monthly performance in many years.

In order to catch up with SK Hynix and Micron in the field of artificial intelligence memory chips, Samsung has increased R&D investment and front-end production capacity. However, its latest product has been slow to pass Nvidia (NVDA.US) certification, and this unusually long window period has enabled SK Hynix to seize a significant lead in the booming artificial intelligence storage market.

Meanwhile, Samsung is trying to win big customers from OEM giant TSMC to revive the OEM business, where operating rates have declined sharply. Currently, TSMC has started production in Arizona and expanded production capacity in the US, but the completion progress of Samsung's Taylor plant has slowed down and is expected to be postponed until 2026.

If this multi-year cooperation agreement with Tesla is successfully implemented, it will help Samsung win more customers and verify the strength of its 2nm mass production technology.

Investors are also concerned about whether Samsung can benefit from Nvidia's resumption of sales of H20 artificial intelligence chips to China. In the past, Samsung's relatively low-end HBM3 chip was used in conjunction with the H20 chip.

Although Samsung's mobile division achieved double-digit profit margins with steady sales of Galaxy S25 phones, concerns about missing out on the first-mover advantage in the field of artificial intelligence are still putting pressure on it. Samsung hopes to maintain its business growth momentum through the recently released Galaxy Zfold and ZFlip folding screen phones, as well as the first tri-fold smartphone launched later this year.