Despite Better-than-Expected Defense... Trump-Driven Tariff Outlook for Q2 Remains Gloomy

Galaxy S25 Drives Strong Q1 Results,
But Semiconductor Division Remains Weak
Half of Smartphones Produced in Vietnam,
Facing 46% Reciprocal Tariffs in the U.S.
Numerous Internal and External Variables for Semiconductors,
Key Task: Expanding Influence in the HBM Market

Thanks to strong sales of the Galaxy S25 model, Samsung Electronics' preliminary results for the first quarter (January to March) of this year exceeded expectations. However, despite the strong first-quarter performance, the outlook for the second quarter is bleak. In particular, the smartphone market, which drove the results, is entering an off-season, and the full-scale implementation of reciprocal tariffs by the United States is expected to negatively impact Samsung Electronics' product price competitiveness. The recovery of the semiconductor division's performance remains uncertain.

Galaxy S25 Sets ‘New Records’… Semiconductor Performance Remains Weak

Samsung Electronics' solid first-quarter performance was driven by the Galaxy S25. Kim Sun-woo, a researcher at Meritz Securities, pointed to the ‘smartphone early shipment effect.’ MX’s strategy of quickly launching the Galaxy S25 model in February proved effective. By releasing the product early to the market, it garnered consumer response and positively influenced the company's performance.

The Galaxy S25 set consecutive new records after its launch. During the domestic pre-order period, approximately 1.3 million units were sold, breaking the highest record. During the official sales period, it surpassed 1 million units sold in a record shortest period of 21 days. In overseas markets, the Galaxy S25 series attracted users, with pre-sales in the Latin American region increasing by 31% compared to its predecessor.

However, business performance excluding the Galaxy S25 was unremarkable. In particular, the semiconductor division’s operating profit, which had driven Samsung Electronics’ results, is estimated to have remained around the 1 trillion won mark. The structure where memory compensates for foundry losses has not changed.

In March, visitors at Samsung Electronics' booth at the world's largest mobile telecommunications exhibition, "Mobile World Congress (MWC) 2025," are examining the 'Galaxy S25 Edge,' the thinnest design among all Galaxy S series to date. Photo by Samsung Electronics

Uncertain Outlook for the Second Quarter

The focus on Samsung Electronics is whether the first-quarter performance will continue into the second quarter. However, since the smartphone market that drove the results is entering an off-season and there are no signs of semiconductor recovery, the prevailing view is that the possibility of a decline in second-quarter performance is currently high.

In particular, Samsung Electronics relies on Vietnam for nearly half of its smartphone production. Vietnam recently faced a high reciprocal tariff rate of 46% imposed by the Donald Trump administration in the United States. Among the major U.S. trading partners excluding China, Vietnam has the highest tariff rate in the U.S. announced country-specific reciprocal tariff plan. Samsung Electronics’ mobile application processor (AP), a key component installed in smartphones, is also expected to be the first target of tariff imposition. A Samsung Electronics official said, "It is difficult to predict second-quarter performance this year due to the impact of semiconductor tariffs."

Concerns and burdens outweigh expectations for semiconductors as well. The surrounding conditions are not positive, and there are many challenges to be addressed. An industry insider said, "Although there are views that semiconductors hit bottom in the first quarter, there are too many internal and external variables, so the situation remains uncertain."

Inside and outside Samsung Electronics, attention is focused on the first anniversary of Jeon Young-hyun, Vice Chairman and Head of the Semiconductor Division, on the 21st of next month. Since his appointment, Jeon has reorganized the organization aiming to restore memory technology and competitiveness and has completely revised DRAM design. There is growing pressure to make these effects visible starting from the second quarter. In terms of profitability, expanding influence in the high-bandwidth memory (HBM) market is identified as a key task. Attention is focused on the results of the 8-stack and 12-stack products of the 5th generation HBM3E, which are currently undergoing Nvidia’s quality test (Qualtest). If the Qualtest is passed and supply to Nvidia is secured, it is expected to change the memory sales structure that is highly dependent on China. At last month’s shareholders’ meeting, Jeon said, "We will not make mistakes with next-generation HBM4 and custom HBM," adding, "We expect that our HBM3E 12-stack product will play a leading role in the market as early as the second quarter or at the latest in the second half of the year."

This content was produced with the assistance of AI translation services.