Samsung Grapples with AI Chip Lag as Profit Plunges 55%

Samsung Grapples with AI Chip Lag as Profit Plunges 55%

Samsung Electronics has reported a drastic 55% drop in Q2 operating profit to $3.4 billion, revealing the company's difficulties in keeping pace with rivals in the fast-evolving AI chip sector. 

While overall revenue saw a modest uptick, the once-dominant chip division posted a staggering 94% year-on-year decline in operating profit, weighed down by low fab utilization and the lingering effects of US export controls on high-end chips bound for China. 

The memory chip giant has lost its global DRAM leadership to SK Hynix and lost traction in high-bandwidth memory, a critical component in AI processors, failing to secure key supply deals with Nvidia due to underperformance in testing.

In logic chips, Samsung trails TSMC significantly, holding just 8% of the global market compared to TSMC’s commanding 68%. Despite years of investment, Samsung’s contract manufacturing business reportedly incurred an operating loss of $4.1 billion last year, with projections rising to $4.8 billion in 2025. 

What Does This Mean for Me?

However, there is a sliver of hope, with a $16.5 billion deal made with Tesla to manufacture its next-generation AI6 chips at Samsung’s Texas plant offering a much-needed turnaround. The project promises improved facility utilization and marks a rare win in the logic chip space. 

Following the announcement, Samsung’s shares surged 6.9%, their highest level since September. As orders from AMD and Broadcom begin to flow and Tesla ramps up its chip ambitions, Samsung is hoping that a more AI-focused strategy in the second half of the year can help restore its battered edge.

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