Only AI Servers Are Growing... Electronics Industry Falls Into a Slump

Complex Headwinds from Inflation and Tariffs
AI Servers Remain the Lone Bright Spot for Electronics
Early Orders Helped Weather the First Half
Concerns Grow Over Weaker Demand and Tariff Impact in the Second Half

The global electronics industry has become caught in "concentrated growth," heavily dependent on artificial intelligence (AI) servers. While ongoing data center investments are driving up server demand-the only segment experiencing growth-traditional electronics such as smartphones, laptops, and TVs are falling into stagnation due to high inflation, a lack of innovation, and tariff burdens. In the first half of the year, early orders were placed in response to U.S. tariffs, but even this effect is expected to fade in the second half. There are growing concerns that even the electronics industry, one of the few pillars of the Korean economy, may be slipping into a downturn.

According to market research firm TrendForce on August 18, AI servers are the only segment in the global electronics industry showing clear growth this year. Shipments are expected to increase by more than 20% compared to the previous year. As data center consumption continues to rise steadily, demand for related components and equipment has also increased.

However, smartphones, laptops, TVs, and wearables are facing a combination of negative factors, including prolonged inflation, a lack of innovation, and ongoing uncertainty over U.S.-China tariffs. The likelihood of a downturn in the second half of the year is increasing. Major finished goods and component manufacturers placed early orders to avoid U.S. tariff barriers, shifting shipments to the first half of the year. Industry analysts note that while first-half sales increased year-on-year, in the fourth quarter, this could lead to a decline in orders and an increase in channel inventory.

By product category, shipments of smartphones and laptops are expected to grow by only 1-2% year-on-year or remain virtually flat. TV shipments are projected to fall by 1.1%, and wearables by 2.8%. TrendForce forecasted, "Even in 2026, shipments of most consumer electronics are likely to stagnate or see only minimal growth of up to around 1%."

Signs of a downturn have already appeared in the domestic home appliance industry. Companies suffered revenue hits in the first half, when tariffs were anticipated to take effect. LG Electronics, whose main business is home appliances such as TVs, saw its second-quarter operating profit fall to 639.4 billion won, about half of the previous year's figure, and sales decline by 4.4% to approximately 20.7 trillion won. This was due to a slowdown in TV sales combined with increased marketing and logistics costs, which hurt profitability in the home appliance segment. Samsung Electronics' total operating profit for the second quarter plummeted by about 55% year-on-year to around 4.7 trillion won. The semiconductor segment was heavily affected by U.S. export controls and one-off costs, while the home appliance segment also struggled due to price cuts and weakening demand.

In particular, the average TV selling prices for Samsung Electronics and LG Electronics in the first half of this year fell by about 4% and 2.5%, respectively, compared to the previous year, continuing their downward trend. This was the result of expanding mid-range lineups to defend market share amid weakening global demand and aggressive low pricing by Chinese competitors.

Smartphones performed relatively well, but analysts attribute this mainly to the effect of early purchases. Samsung Electronics' Mobile eXperience (MX) division posted an operating profit of about 3.1 trillion won, up 39% year-on-year, thanks to strong sales of the Galaxy S series and entry-level models. In the global market, Apple also benefited from early purchases, with its second-quarter operating profit rising 11.2%. Apple CEO Tim Cook explained, "Customers bought products in advance due to concerns over future tariffs."

After the third quarter, the effect of early purchases in the first half is expected to dissipate, and as mutual tariffs between the U.S. and China and product-specific tariffs are fully implemented, most forecasts predict that profitability in the electronics industry will inevitably deteriorate. TrendForce analyzed that while early orders boosted first-half sales, in the second half, a decline in orders and an increase in inventory burdens are unavoidable. The firm further projected that even in 2026, shipments of consumer electronics will remain stagnant, and the electronics industry as a whole is likely to enter a period of low growth.

An industry official stated, "There are no conditions for an improvement in the business environment, such as an economic recovery or relief from tariffs." The official added, "However, since it is unclear how many advance orders were placed in the first half, it is difficult to predict whether inventory will become a significant issue in the second half."

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