Decline in Samsung's Second-Quarter Operating Profit by 55 Percent
In the second quarter of 2025, Samsung Electronics, the flagship unit of South Korea's Samsung Group and one of the world's largest tech companies, reported a significant drop in profitability due to U.S. curbs on AI chip exports to China.
The regulatory filing for Samsung Electronics showed a 55.5 percent decline in operating profit year-on-year, with the operating profit for the April-June period standing at 4.7 trillion won ($3.4 billion). The company's net profit also took a hit, falling by 48 percent compared to the previous year, amounting to 5.1 trillion won.
The weak earnings in the Foundry Business, which produces chips for other companies, were attributed to inventory value adjustments related to U.S. export restrictions on advanced AI chips to China. This pressure on the foundry segment, despite growth in overall revenue, was due to the limitations these export curbs imposed on sales opportunities to Chinese customers.
Samsung plans to mitigate the impact of these export restrictions by increasing production efficiency and expanding sales to other major customers outside China. The company anticipates sustained AI-related demand globally and believes that these strategies will help improve profitability.
However, the direct consequence of the U.S. export restrictions has been a notable decrease in Samsung Electronics' profitability through reduced chip sales to China. It's important to note that the $16.5 billion deal between Samsung Electronics and Tesla, signed to provide AI chips through the end of 2033, was not part of the reasons for the year-on-year drops in operating or net profit for the second quarter.
The financial results were for the April-June period and did not include the details of this substantial deal between Samsung Electronics and Tesla. Despite this, the impact of U.S. curbs on AI chip exports to China was evident in Samsung Electronics' financial performance for the second quarter of 2025.
The U.S. export restrictions on advanced AI chips to China have significantly affected Samsung Electronics' profitability in the tech business, as shown by the 55.5 percent decline in the company's operating profit year-on-year. Samsung is attempting to counter the impact by increasing production efficiency and expanding its sales to other major customers outside China, while anticipating sustained AI-related demand globally.
Artificial intelligence and technology are crucial components in Samsung Electronics' financial strategy, evidenced by their plans to enhance these areas to improve profitability. The recent $16.5 billion deal between Samsung Electronics and Tesla for AI chip supply through 2033 underscores the company's commitment to the business and technology sectors.
