Revenue Grows but Inventory Provisions Lead to Profit Decline
Semiconductor Operating Profit at 0.4 Trillion KRW... Fourth Consecutive Quarterly Drop
Foundry Secures Tesla, Setting the Stage for a Second-Half Rebound
Samsung Electronics recorded an "earnings shock" in the second quarter of this year, with operating profit dropping by more than half compared to the same period last year. This was due to significant underperformance in the high-bandwidth memory (HBM) market, which is considered a key component for artificial intelligence (AI) semiconductors, as well as more than 2 trillion KRW in losses posted by the foundry (semiconductor contract manufacturing) division, which struggled to win major clients.
On July 31, Samsung Electronics announced that its consolidated revenue for the second quarter of this year reached 74.5663 trillion KRW, with operating profit at 4.6761 trillion KRW. Compared to the second quarter of last year, revenue increased by 0.6%, but operating profit plunged by 55.2%. Although securities analysts had recently lowered their expectations for Samsung’s second-quarter results over the past month, the actual performance came in even lower than anticipated.
In addition to the continued losses in the semiconductor division, the company was also affected by the seasonal off-peak period for smartphones. Samsung Electronics stated, "Despite revenue growth, operating profit decreased by 800 billion KRW from the previous quarter due to inventory valuation allowances in the memory business and additional inventory provisions resulting from sanctions on the non-memory business in China." The company also explained, "Sales declined by 16% and operating profit dropped by 1.4 trillion KRW due to the reduced impact of new smartphone model launches."
By segment, the Device Solutions (DS) division, which handles semiconductors, posted operating profit of only 400 billion KRW. Considering that, after the provisional second-quarter results were announced earlier this month, DS division’s operating profit was estimated to be at least in the upper 1 trillion KRW range, this is a disastrous result. Semiconductor operating profit has continued to decline for four consecutive quarters since reaching 6.45 trillion KRW in the second quarter of last year.
For memory, Samsung actively responded to server demand by expanding the sales share of HBM3E and high-capacity Double Data Rate 5 (DDR5) products, and sales of solid-state drives (SSD) for data centers also increased. However, one-off costs such as inventory valuation allowances weighed on performance. The System LSI division achieved solid revenue by supplying mobile chipsets for major flagship models, but profitability did not improve due to advanced product development costs.
The foundry division, which recently announced an order worth approximately 23 trillion KRW over eight years from Tesla, saw a significant improvement in revenue compared to the previous quarter. However, performance remained weak due to additional inventory provisions and lower utilization rates for mature processes.
The Device Experience (DX) division, responsible for finished products such as smartphones and home appliances, recorded revenue of 43.6 trillion KRW and operating profit of 3.3 trillion KRW. In the mobile segment, although sales volume decreased compared to the first quarter when new smartphone models were launched, robust sales of flagship lineups led to growth in both revenue and operating profit. For TVs, the company increased the sales share of strategic products such as organic light-emitting diode (OLED) models, but performance declined due to intensified global competition, including the pursuit by Chinese companies.
Although global trade uncertainties and geopolitical risks are expected to persist in the second half of the year, raising concerns about a worldwide slowdown, Samsung Electronics anticipates that growth will continue to spread, particularly in future industries such as AI and robotics. In particular, the resolution of tariff negotiations with the United States and the acquisition of major customers for the foundry division, which had been underperforming, are expected to serve as a foundation for a rebound in performance.
For semiconductors, the main factors determining performance in the second half will be the development of next-generation HBM4 and whether 2-nanometer process mass production can be achieved. Samsung plans to actively respond to demand for AI server products in the memory segment, including HBM and high-capacity DDR5. The System LSI division is expected to focus on mass production of the "Exynos 2600" targeting flagship lineups for next year. The foundry division aims to improve profitability by mass-producing new mobile products using the 2-nanometer process and expanding sales to major clients.
For smartphones, the company plans to continue expanding sales centered on flagship models, such as the Galaxy Z Fold7, Z Flip7, and the Galaxy S25 series. For TVs, Samsung aims to achieve revenue growth by responding early to peak season demand with its "AI TV" lineup, which offers an enhanced viewing experience. In home appliances, the company plans to improve its business structure by focusing on high-value-added products such as AI appliances and heating, ventilation, and air conditioning (HVAC) systems, while also minimizing the impact of tariffs through supply base optimization.
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