Samsung Warns US Tariffs Will Hit Demand for Products Amid Downbeat Outlook
The world’s largest maker of memory chips and smartphones, Samsung Electronics, has issued a warning that US tariffs will negatively impact demand for its products, contributing to a cautious outlook for the year. According to the company, "growing policy risks" will increase uncertainty for its chip business, while tariffs will raise prices for smartphone components and put downward pressure on mobile device sales.
In an earnings call on Wednesday, Samsung’s chief financial officer, Park Soon-cheol, stated that "ongoing uncertainty surrounding US tariff policies continues to pose a potential risk of demand slowdown." He added that changes to tariff policies in major economies, as well as stronger export controls against artificial intelligence, have already been adding to rising uncertainties in expected demand in the second half of the year.
The South Korean company’s chip business reported a roughly 40 per cent drop in first-quarter operating profit, as sales of its high-bandwidth memory chips used in AI hardware were hit by tougher US export controls on China. Analysts estimate that Samsung generates about a third of its HBM sales in China, and the export controls’ impact outweighed an increase in orders from Chinese customers stockpiling memory chips ahead of US levies.
The US has suspended "reciprocal tariffs" on dozens of countries, including South Korea and Vietnam, until July, but a minimum 10 per cent duty still applies and is likely to increase prices of Samsung’s various consumer electronics, such as smartphones and TVs. Samsung produces nearly half of its smartphones in Vietnam, while most of its TVs sold in North America are made in Mexico. The company said it would prepare measures to cope with US tariffs, including considering relocating the production of TVs and other home appliances.
According to Albert Yong, managing partner at Petra Capital Management, a Seoul-based hedge fund, "The memory cycle seems to have hit the bottom, but the company’s shares have been weighed by growing uncertainties related to tariffs and regulations." He added that "Samsung’s performance is unlikely to improve dramatically without HBM sales to Nvidia."
Samsung shares fell 0.4 per cent on Wednesday, along with the broader Kospi benchmark. The company’s shares are down more than 28 per cent for the year, as it has failed to ride the AI boom. The chipmaker is struggling to catch up with rival SK Hynix, whose shares have risen 2 per cent this year, in the high-margin HBM business. Samsung’s advanced HBM chips have yet to pass qualification tests for Nvidia, a major client of both companies.
In an effort to boost its technological edge, Samsung spent Won9tn ($6.3bn) on research and development in the first quarter, up 16 per cent from a year ago. The company plans to increase production of its advanced 12-layer HBM3E chips in the current quarter, as it expects strong demand for AI servers. As the company navigates the complex landscape of US tariffs and export controls, it remains to be seen how Samsung will adapt and respond to the changing global trade environment.
The impact of US tariffs on Samsung’s business has been a significant concern for investors, with many analysts predicting that the company’s performance will continue to be affected by the ongoing trade tensions. As the world’s largest maker of memory chips and smartphones, Samsung’s fortunes are closely tied to the global trade environment, and any disruption to its supply chain or sales could have significant consequences for the company’s bottom line.
The FT has reported that Donald Trump’s pause on his "reciprocal tariffs" had encouraged some customers to move up their orders, but Samsung cautioned that the frontloading could have "some negative impact" on demand in the second half of the year. As the company continues to face challenges in the global market, it will be crucial for Samsung to develop strategies to mitigate the impact of US tariffs and export controls on its business.
The company’s plans to increase production of its advanced HBM3E chips in the current quarter are a positive step, but it remains to be seen how Samsung will navigate the complex landscape of global trade and technology. As the company continues to face challenges in the global market, investors will be closely watching Samsung’s performance and strategy in the coming months.
This article is based on reporting by the Financial Times. The original article can be found at https://www.ft.com/content/4c2382ab-b824-42ec-ae24-d3620072bf9f.
