Samsung Electronics institutional sector Device eXperience (DX) swung to a loss in the second quarter this year. As prices for memory and key parts used in flagship products such as smartphones, TVs, and home appliances surged and global consumer demand slowed, sales growth did not translate into profit.
However, first-half sales topped 100 trillion won for the first time. Robust premium smartphone sales, expansion in TV and appliance scale, and improved results at automotive electronics subsidiary Harman supported revenue. While the company held the line on scale despite simultaneous parts price increases and demand weakness, some say it revealed a business structure in which higher unit sales and average selling prices alone cannot offset cost pressures.
According to Samsung Electronics on the 30th, the DX institutional sector posted 48 trillion won in sales and an operating loss of 800 billion won in the second quarter. Cumulative first-half sales were 100.7 trillion won, up about 6% from a year earlier. It is the first time the DX institutional sector has exceeded 100 trillion won in first-half sales.
The simultaneous rise in scale and deterioration in profitability came because, although major products sold more or fetched higher prices, cost and expense burdens grew even more. In particular, as memory prices climbed steeply on rising demand for artificial intelligence (AI) servers, parts procurement costs for set (finished goods) businesses such as smartphones, TVs, and appliances increased. With consumer weakness making it hard to pass all cost increases on to product prices, new product marketing and distribution expenses also piled on.
◇ Galaxy sales rose, but cost pressures
The Mobile eXperience (MX) division also could not avoid the impact of rising memory prices. Thanks to strong sales of the Galaxy S26 series, it kept the No. 1 spot in the global smartphone market in the second quarter, and the higher proportion of high-priced models lifted the average selling price of smartphones and sales from a year earlier. Although sales increased in the second quarter, when the effect of a new product launch usually weakens, profitability worsened as the rise in parts costs outpaced the benefit from higher selling prices.
In the second half, the Galaxy Z8 series unveiled on the 22nd is cited as a key variable for a rebound. On the first day of domestic preorders, live broadcast sales more than doubled from the previous model, and the Galaxy Z Fold8 led early sales. Samsung Electronics plans to defend profitability by increasing the share of high-priced models such as Ultra and foldables and by adjusting sales channels and product mix.
But it remains to be seen whether the foldable hit will immediately translate into a profit recovery. Foldables carry heavy cost burdens because they use many expensive parts, such as displays and hinges, compared with regular smartphones. If prices for parts such as memory and displays remain high, profitability improvement may be limited even if sales volumes rise.
Samsung Electronics is also working to expand a smartphone-centered mobile ecosystem to other devices. It plans to launch "intelligent eyewear" in partnership with Gentle Monster and Warby Parker within the year, widening AI experiences concentrated on smartphones to a new form factor. However, as the smart glasses market is still in its early stages, the move is more about securing a mid- to long-term growth base than swaying results in the short term.
◇ TV diversifies revenue with ads and content
The Visual Display (VD) division, which oversees TVs, grew sales from a year earlier on higher unit volumes. However, with the TV market stagnant for a prolonged period and prices of parts such as panels and memory rising, it remains difficult to boost profitability through hardware sales alone.
Samsung Electronics is expanding service businesses that generate revenue through advertising, content, and the operating system (OS) even after a TV is sold. Samsung TV Plus, a free ad-supported streaming service, now offers more than 4,300 channels in 30 countries and has more than 100 million monthly users. Samsung Gaming Hub, in partnership with Xbox and GeForce NOW, enables thousands of games to be played on TVs without a separate console.
It is also expanding the advertising and OS licensing businesses. As the global TV market matures, the strategy is to generate recurring sales from TVs already sold rather than relying solely on replacement demand. The same shift that has made ecosystem revenue from apps, content, and ads important in the smartphone market is appearing in the TV market.
It is strengthening hardware competitiveness in parallel. Samsung Electronics has designated this year as "the first year of AI TV popularization" and expanded AI features from premium to mass-market products. Through "Vision AI Companion," it aims to offer personalized viewing based on voice commands and user preferences.
Samsung Electronics maintained the No. 1 spot in the global TV market for the 20th straight year with a 29.1% share by last year's sales. However, as Chinese companies rapidly catch up in the premium market with mini light-emitting diode (LED) TVs, profitability pressures could grow if marketing and promotional expenses are increased to defend share. How much service sales can offset the decline in hardware profitability will be key to the VD division's future results.
◇ Appliances bet on HVAC and AI products
The Digital Appliances (DA) division, which handles home appliances, is offsetting stagnation in consumer appliances with heating, ventilation and air conditioning (HVAC) and business-to-business (B2B) operations. While appliances are heavily influenced by the property market and consumer sentiment, the HVAC business has the advantage of securing long-term sales centered on large projects such as data centers, hotels, and housing complexes.
Samsung Electronics' WindFree air conditioner topped a cumulative 20 million units in global sales in June. It is also expanding suppliers to destinations such as premium hotels in Southern Europe, 3,000-household residential complexes in Ho Chi Minh City, Vietnam, and the Paraguayan landmark "Paseo55."
In Europe, it is increasing orders for high-efficiency heat pumps. It agreed to supply heat pumps and the integrated control solution "SmartThings Pro" to a 1,500-household redevelopment project in Cornwall, United Kingdom, and to 370 apartment buildings in four cities in Poland. As Europe replaces fossil-fuel boilers with heat pumps to cut carbon emissions, this is a field with expectations for mid- to long-term demand growth.
Based on Plect Group, a European HVAC company it acquired last year, it has also entered the central HVAC market for data centers and large industrial facilities. In May, it established Plect's Korea unit and is preparing to target the domestic commercial and industrial HVAC market. With the rise of AI data centers heightening the importance of server cooling and power efficiency management, the HVAC business is emerging as a new growth axis for Samsung Electronics' DX institutional sector.
In consumer appliances, it is expanding sales of high-priced products with AI features. The all-in-one washer-dryer "Bespoke AI Combo" has surpassed a cumulative 300,000 units sold in Korea, and its share of Samsung Electronics' total washer sales has risen to more than 40%. The robot vacuum "Bespoke AI Steam" saw monthly sales increase from 20,000 units in May to 50,000 in June after its February launch.
Rising AI appliance sales help lift the average selling price, but there are limits to fully offsetting the overall demand slowdown in the home appliance market. Alongside expanding sales of premium products, analysts say the DA division needs the B2B businesses such as HVAC to make a real profit contribution for its structural reforms to bear fruit.
◇ Investment in AI and robots continues
Despite weak results, Samsung Electronics is continuing to invest in future businesses such as AI and robots. The DX institutional sector installed 517 high-performance servers at the Sangam data center, cutting TV drop-test verification time from 15 days to 2. It aims to apply AI to existing manufacturing processes such as design, quality verification, and production management to shorten development times and reduce expense.
It is also pursuing a plan to convert all domestic and overseas production facilities into "AI autonomous factories" by 2030. The goal is to go beyond simple automation and build a system in which AI detects anomalies in production and autonomously adjusts equipment and processes. Such investments are focused on lowering fixed costs and quality expense in the mid to long term rather than boosting sales immediately.
It also reorganized the robotics business. On the 21st, Samsung Electronics created the RX Business Promotion Office under the CEO to consolidate robotics capabilities that had been scattered across divisions. It has built a data factory in Gumi to secure training data for robots and is reportedly set to commercialize starting with manufacturing humanoids in stages.
However, robots require massive investment in technology development and mass-production systems, and it could take considerable time before meaningful sales occur. With profitability weakening in the DX institutional sector's existing businesses, it is important to generate stable cash from smartphones, TVs, and appliances to sustain future investment.
Expansion of noncore businesses such as automotive electronics and medtech is also continuing. Subsidiary Harman posted 4.6 trillion won in sales and 400 billion won in operating profit in the second quarter on expanded supply of automotive electronics products including intelligent cockpits and stronger consumer audio demand. Both sales and operating profit improved from the previous quarter, partly offsetting the DX institutional sector's decline.
◇ Key in the second half is profitability recovery
Second-half results for the DX institutional sector are expected to hinge on premium product sales including the Galaxy Z8 series, year-end peak-season demand for TVs and appliances, and parts price trends. If cost pressures ease, first-half scale growth and product mix improvements could translate into a profit recovery. Conversely, if memory price increases and consumer weakness persist, losses could continue despite higher sales.
The DX institutional sector is shifting from a structure reliant on smartphone, TV, and appliance sales to one that combines services such as advertising and content, B2B such as HVAC and automotive electronics, and future businesses such as AI and robots. The first-half milestone of 100 trillion won in sales signals that sales competitiveness in existing businesses remains intact, but the second-quarter loss shows that diversification gains are not yet large enough to offset the shock of rising costs.
Whether premium product sales, TV services, and expansion of HVAC and automotive electronics translate into improved operating profit will likely determine the success or failure of Samsung Electronics' DX institutional sector overhaul.