**Samsung’s Semiconductor Division Faces Profit Decline Amid Challenges**
**Meta Description:** Samsung Electronics’ semiconductor division reports disappointing profits, impacted by export controls and competition, despite a recent contract with Tesla.
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**Samsung’s Semiconductor Division Faces Profit Decline Amid Challenges**
Samsung Electronics Co. has reported a significant drop in profits from its semiconductor division, highlighting ongoing difficulties for the world’s largest memory chipmaker. For the June quarter, the division posted an operating profit of 400 billion won ($288 million), falling drastically short of analysts’ expectations, which averaged 2.73 trillion won. This downturn is attributed to U.S. export restrictions on high-bandwidth memory chips and losses within its foundry segment.
The South Korean tech giant, which had already issued bleak preliminary profit and revenue forecasts earlier in July, announced a net income of 4.93 trillion won, missing the anticipated 6.37 trillion won. The decline in profits was exacerbated by a one-time inventory charge in its foundry unit, which is heavily reliant on demand from China. This charge resulted from unsold AI chips due to export controls, alongside a decrease in usage rates.
Despite the profit slump, Samsung noted robust demand for high-end memory products used in servers. The company anticipates that operating losses in its foundry unit will decrease in the latter half of the year as demand gradually recovers.
This disappointing quarterly performance comes on the heels of Samsung securing a $16.5 billion contract with Tesla Inc. to manufacture AI chips at a new facility in Taylor, Texas. Following the announcement, Samsung’s stock surged by 10%, contributing to a more than 20% increase in July, positioning it for its best monthly performance in over four years.
In a bid to compete with rivals SK Hynix Inc. and Micron Technology Inc. in the AI memory sector, Samsung has ramped up investments in research and development as well as front-end capacity. The company is also focused on attracting large clients like Tesla to rejuvenate its struggling foundry division, which has seen a significant drop in operating rates. Successfully executing the multi-year deal with Tesla could enhance Samsung’s chances of securing additional clients and validate its technology for 2-nanometer mass production.
Investors are keenly observing whether Samsung will benefit from Nvidia Corp.’s resumption of sales of its H20 AI chips to China, as the Korean memory maker’s less advanced HBM3 has previously been utilized alongside H20 chips. However, Samsung has delayed the completion of its Taylor plant, now expected to commence operations in 2026, and faces challenges in attracting major customers away from Taiwan Semiconductor Manufacturing Co., the leading contract chipmaker, which is expanding its production capabilities in the U.S.
Concerns persist regarding Samsung’s ability to penetrate the cutting-edge HBM chip market, currently dominated by SK Hynix. The company has encountered difficulties in obtaining certification for its latest products from Nvidia, allowing SK Hynix to establish a strong foothold in the rapidly growing AI memory market.
**FAQ**
**What factors contributed to Samsung’s profit decline in its semiconductor division?**
Samsung’s profit decline was primarily due to U.S. export controls on high-bandwidth memory chips, losses in its foundry unit, and a one-time inventory charge related to unsold AI chips.
