Samsung expects steep drop in operating profits on US chip woes

Samsung Electronics said Tuesday it expected its second quarter operating profits to drop 56 percent, blaming US export controls on advanced AI chips to China.

The firm is the flagship subsidiary of South Korean giant Samsung Group, by far the largest of the family-controlled conglomerates that dominate business in Asia’s fourth-largest economy.

The tech giant said in a regulatory filing that its April-July operating profits were expected to drop to 4.6 trillion won ($3.3 billion) — down 55.94 percent from a year earlier and 31 percent from the previous quarter.

The figure was 23.4 percent lower than the average estimate, according to South Korea’s Yonhap news agency, which cited its own financial data firm.

Sales were estimated at 74 trillion won, down 0.09 percent from a year earlier and 6.5 percent from the previous quarter.

The company did not disclose its net income or the detailed earnings of its business divisions.

In a separate release, the company explained why the results “fell short of market expectations”.

The company’s key semiconductors and display division “recorded a quarter-on-quarter decline in profit due to inventory value adjustments and the impact of US restrictions on advanced AI chips for China,” it said.

Washington has expanded efforts to prevent Beijing getting state-of-the-art chips over concern that they could be used to advance the country’s military systems and other tech capabilities.

The restrictions mean that utilisation rates at the company’s high-tech factories are low.

However, Samsung projected that in the second half of the year it would trim operating losses “as utilisation improves due to a gradual recovery in demand.”

Shares in Samsung dropped more than one percent at market open in Seoul on Tuesday.

Samsung is among the smartphone makers under pressure from US President Donald Trump, who threatened South Korea with new 25 percent tariffs in his latest round of trade warnings.

Trump has repeatedly demanded that global companies — including Samsung and rival Apple — relocate production to the United States, which many experts warn is unrealistic.

South Korea has already been hit by sector levies on steel and car exports, and said Tuesday it was maintaining “close communication” with the Trump administration as it sought to head off additional levies.