Samsung Electronics announced on Friday that it expects sluggish sales of its AI chips this quarter, mainly due to U.S. export restrictions on China. The company is also working on rolling out an upgraded version of its premium chips.

While advanced AI chips have been a highlight in the otherwise struggling memory chip market, SK Hynix has taken the lead as Nvidia's primary supplier of high-bandwidth memory (HBM) chips for AI graphics processing units (GPUs). Meanwhile, Samsung has faced challenges in meeting Nvidia's demands.

In December, the U.S. intensified its crackdown on China's semiconductor sector, which included new restrictions on HBM chip sales. Analysts suggest that Samsung, which has relied on Chinese customers for around 20% of its HBM sales, will feel the impact more severely than its competitors.

"There will be some temporary restrictions in our HBM chip sales in the first quarter," said Kim Jae-june, executive vice president of Samsung's memory business, during an earnings call on Friday.

"We expect some impact on our HBM demand from not just U.S. restrictions on exports of high-end chips but also a shift in demand for improved chips by major clients," he said.

Samsung kicked off sales of its 8-layer and 12-layer HBM3E products in Q3 and plans to roll out upgraded versions in March. 

Nvidia's CEO Jensen Huang mentioned this month that Samsung needs to "engineer a new design" to provide HBM chips for his company, according to Korea JoongAng Daily. 

In October, Samsung noted it was making strides in supplying HBM chips to Nvidia, but there haven't been any public updates since then. 

Kim pointed out that GPU supply issues have been causing project delays for some clients, which is affecting the demand for memory chips used in data center servers. 

Nvidia's GPU chips are in high demand but are facing supply shortages due to production challenges. 

EARNINGS GROWTH LIMITED

Samsung reported an operating profit of 6.5 trillion won ($4.48 billion) for Q4, a 29% drop from Q3. 

The South Korean company anticipates limited earnings growth in Q1 due to poor conditions in the memory chip market, including weak demand for smartphones and PCs. 

Samsung predicts that mobile phone market growth will slow this year, as uncertainties from U.S. policy changes and inflation are likely to dampen consumer sentiment. 

Last week, Samsung introduced its latest flagship Galaxy phone featuring AI capabilities, aiming to boost mobile margins above 10% this quarter after facing profit declines from competition with Apple and Chinese brands. 

However, Samsung opted for Qualcomm's application processors for the entire Galaxy S25 series, moving away from its own Exynos chips, which the company said would continue to weaken its logic chip design business this quarter. 

After a four-day holiday break, Samsung's shares fell 2.8%, compared to a 0.75% drop in the broader market. Meanwhile, SK Hynix shares dropped 9.6% amid concerns over the impact of the low-cost Chinese AI model DeepSeek.

DEMAND RECOVERY

Samsung, the top player in the memory chip market, is optimistic about a rebound in overall memory demand starting in the second quarter.

Analysts believe that Samsung's performance in 2025 and its stock value will hinge on its ability to deliver a significant amount of advanced 12-layer HBM3E chips to Nvidia.

Both SK Hynix and Taiwan's TSMC, the largest contract chipmaker globally, announced record profits this month, thanks to the AI surge, with SK Hynix even surpassing Samsung's figures for the first time.

In the fourth quarter, Samsung's operating profit jumped 130% compared to a low point from the previous year when the memory chip sector was facing its toughest downturn in decades, aligning with the preliminary numbers released earlier this month.

However, Samsung's mobile phone division saw a 22% drop in operating profit, landing at 2.1 trillion won compared to the same quarter last year.

On the bright side, its chip division reported an operating profit of 2.9 trillion won, though that’s still less than half of the 8.08 trillion won profit that smaller rival SK Hynix achieved during the same timeframe.

Samsung mentioned that while detailed investment plans for 2025 are still in the works, capital spending on memory chips is expected to be on par with last year's levels.