Samsung Electronics, one of the world’s largest memory chip manufacturers, reported that its estimated operating profit for the second quarter of 2025 plunged by 56% year-over-year. This sharp decline is primarily attributed to U.S. export restrictions on advanced chips to China and difficulties in supplying its advanced products to the massive client, Nvidia. For the three months between April and June, Samsung’s operating profit stood at 4.6 trillion won (approximately $3.3 billion), marking its lowest profit in six quarters. This represents a dramatic drop compared to the 10.44 trillion won recorded in the corresponding quarter last year. The figure also falls significantly short of analysts’ forecasts, who had expected an operating profit of 6.3 trillion won (approximately $4.6 billion) for the period. According to company estimates, sales for the quarter will amount to 74 trillion won. These reports reflect the complex implications of geopolitical dynamics and intensifying competition in the technology market, particularly in the advanced memory chip and AI sectors.

For the first quarter of the year, the company reported a 21% drop in operating profit, totaling 5.2 trillion won (approximately $3.62 billion). The Q2 plunge indicates a worsening situation. Samsung noted that its chip division, a major profit driver, saw a quarterly decline in earnings due to “inventory valuation adjustments and the impact of U.S. restrictions on advanced AI chip exports to China.” It appears these restrictions are affecting not only direct sales capabilities but also Samsung’s foundry business (manufacturing chips for other companies). Despite the challenges, the company estimates that the operating loss will narrow in the second half of the year, mainly due to a gradual recovery in overall demand.

Battle for AI Chip Supremacy: Samsung Versus SK Hynix and Micron

One of the main challenges facing Samsung is the fierce competition for supremacy in the advanced memory chip market for artificial intelligence, a sector considered a future growth engine. Samsung continues to lag behind smaller but more agile rivals, such as SK Hynix and Micron Technology. While SK Hynix, for instance, has already established itself as a leading supplier of advanced memory chips for Nvidia – the undisputed leader in the AI chip market – Samsung has yet to receive the necessary approval from Nvidia for its new chips. This gap in supply capability to a key player like Nvidia directly impacts Samsung’s market share and profitability potential in the hot AI sector.

The situation is exacerbated by the inherently volatile nature of the memory chip market, which is directly affected by demand and supply cycles. While Samsung is a giant player with a broad product portfolio (including phones, displays, home appliances, etc.), its chip division is the core of its profitability, and within it, AI memory chips are seen as the future. Its ability to close the technological gap and secure crucial regulatory and business approvals will be critical for its long-term success in the battle for dominance in the AI field. These difficulties are compounded by broader economic pressures, such as the impact of U.S. tariffs, which have led to a decline in sales of Samsung TVs and other home appliances.

Exchange Rate Challenges and Hope for the Foldable Smartphone Market

Samsung has also been impacted by the significant appreciation of the South Korean won against the dollar, which has risen by 7% since the beginning of the year. This appreciation negatively affects the company’s price competitiveness, as it makes its products more expensive in international markets when priced in dollars. This pressure could hurt Samsung’s market share in various products, from chips to electronic devices.

Amidst these challenges, Samsung hopes to regain market share in the global smartphone market, particularly thanks to the planned launch of a new foldable smartphone later this week in New York. While the foldable device market is still relatively niche, it is experiencing rapid growth: global shipments of foldable devices rose by 12% last year, reaching 17.2 million units. However, Samsung has seen its market share in this segment decline from 54% to 45%, indicating increasing competition even in this category. A successful launch of the new model, accompanied by significant innovation, is crucial for Samsung to re-establish its position as a leader in the foldable smartphone market and improve its financial performance.

Future Outlook: H2 Recovery and Navigating a Complex Global Environment

The sharp decline in Samsung’s operating profit in the second quarter highlights the vulnerability of tech giants to geopolitical dynamics and fierce technological competition. Nevertheless, the company expects the operating loss of its chip division to narrow in the second half of the year, mainly due to a gradual recovery in demand. This recovery depends, among other factors, on the overall demand for chips of all types, and especially on the demand for memory chips for data centers and AI applications.

Samsung’s ability to navigate this complex environment – which includes trade tensions between the U.S. and China, unprecedented technological competition, and exchange rate fluctuations – will be critical to its future performance. Accelerated investment in R&D, implementation of advanced manufacturing technologies, and securing essential regulatory and business approvals for AI chips will be key to its success. Concurrently, the foldable smartphone market offers a window of opportunity for growth, and Samsung will need to leverage its expertise to remain at the forefront of innovation and regain market share. Samsung’s success will be a significant indicator of the global technology market’s health, as it is a key player in numerous critical domains.