Samsung Electronics' smartphone business effectively posted a quarterly loss for the first time in the second quarter this year. Sales rose from a year earlier on solid demand for the Galaxy S26 series and the mid- to low-end Galaxy A series, but the mobile experience (MX) and network businesses recorded an operating loss of 700 billion won after failing to absorb higher prices for components such as memory.
The issue is that the loss did not stem from weak smartphone sales. Even with higher unit sales and revenue, the business failed to make a profit. It is a core responsibility of management to defend profitability by reflecting cost increases in prices and product mix and by adjusting component procurement and marketing expense. Because even the defense that sales were weak is hard to accept, worries are expected to grow for Roh Tae-Moon, head of the DX division and head of the MX business, and for Choi Won-joon, chief operating officer (COO) of the MX business. Critics say management should present concrete solutions on what will change to prevent losses, rather than stopping at the boilerplate explanation that rising component prices caused the first loss.
◇ Galaxy sold well, but no profit remained
According to second-quarter 2026 results released on the 30th by Samsung Electronics, the MX and network businesses posted sales of 3.32 trillion won and an operating loss of 700 billion won. Sales rose 13.7% from the second quarter last year, but operating profit swung to a loss from a 3.1 trillion won surplus. Even compared with the first quarter this year, operating profit fell from 2.8 trillion won to minus 700 billion won. In just one quarter, profit decreased by 3.5 trillion won.
The 700 billion won operating loss is the combined loss of MX and network, not MX alone. However, the network business improved from both a year earlier and the prior quarter on stronger overseas sales. By contrast, even though the MX business booked 3.23 trillion won in sales, up 14% on-year, the combined results turned to a loss. It means MX profitability deteriorated enough to more than offset the improvement in the network business.
It is effectively the first time Samsung Electronics' smartphone business has posted a quarterly loss. Even in the third quarter of 2016, when costs from the discontinuation of the Galaxy Note 7 were reflected, the IT and mobile (IM) institutional sector, which then included smartphones and the network business, generated 100 billion won in operating profit. The surplus that was maintained even amid the unprecedented product discontinuation has now collapsed. It is not that smartphone sales were sluggish. Samsung Electronics said MX sales increased on the back of steady sales of the Galaxy S26 series and expanded sales of the Galaxy A series. Smartphone shipments also grew from the previous quarter. But with a sharp rise in prices of key components, including memory, top-line growth did not translate into profit. The MX business loss illustrates the "paradox of the memory boom" unfolding within Samsung Electronics.
◇ Memory price hikes were signaled… hard to blame only "costs"
It is hard to see the rise in memory prices as a completely unforeseen variable for MX management. Since last year, there have been projections that demand for AI Server Memory would affect supply and prices of mobile memory. Samsung Electronics also noted from the first quarter this year that higher component prices were pressuring the mobile business's revenue.
Component prices are an external variable that management can hardly control. But extending purchase contracts, diversifying suppliers, adjusting product prices and specifications, and controlling sales incentives and marketing expense fall within the realm of management. If, despite forecasting higher memory prices, the company failed to timely adjust pricing policy, product mix, and component procurement strategy, it is hard to shift all the blame for the loss to the external environment.
Rivals are already moving to diversify their supply chains. Apple has reportedly asked the U.S. government to allow the use outside the United States of products from China's Changxin Memory Technologies (CXMT) to address memory prices and shortages. Separate from whether it will actually adopt the parts or their quality competitiveness, this shows a move to avoid simply accepting higher component prices and to secure negotiating leverage with suppliers.
There are calls for Samsung Electronics' MX business to reexamine whether its existing supply structure was optimal in terms of cost competitiveness. Management should explain whether it can secure multiple suppliers mainly for low- and mid-priced products and whether it can lower expense through long-term supply contracts or specification adjustments.
◇ "We will sell more foldables and cut costs"… a general plan with no numbers
In its second-quarter earnings conference call on the 30th, Samsung Electronics proposed expanding sales of premium products and improving expense efficiency as solutions for the second half. The MX business plans to sustain sales momentum for the Galaxy S26 series and successfully launch new products such as the Galaxy Z8 series, Galaxy Tab S12, and Galaxy Watch Ultra 2. It will also expand sales through the Galaxy A57 and A37. At the same time, it said it will adjust resource allocation across purchasing, sales, and research and development, and flexibly change product mix and distribution channel operations according to profitability.
However, this is close to a prescription repeated whenever smartphone profitability worsens. Samsung Electronics did not disclose specific targets for how much it would reduce costs, which products' prices or specifications it would adjust, how it would diversify suppliers, or how much it would trim marketing spending and sales incentives.
Expanding premium products is not a cure-all either. While high-end smartphones command higher prices, they use high-capacity memory and high-spec components, which can make them more vulnerable to rising component costs. Even if foldables become hits and allow improvements in product mix, their share of total smartphone sales is limited, and marketing and distribution support expense are needed in the early stages after launch.
There is also a risk that efforts to expand market share and defend profitability will clash. If the company boosts discounts, subsidies, and marketing spending to increase unit sales, losses could deepen. Conversely, if it passes component cost increases on to consumer prices, demand could fall. An industry official said, "In the second half, what matters more than 'how many you sell' is 'how much you keep per unit sold.'"
◇ Leadership changes during the chip crisis and again during MX weakness
Samsung Electronics has a precedent of replacing business heads when competitiveness wavered. In May 2024, as concerns grew over delays in responding to high-bandwidth memory (HBM) and weakening competitiveness in foundry, Samsung Electronics abruptly replaced then-DS chief Kyung Kye-hyun with Vice Chairman Jun Young-hyun. It is hard to compare the MX situation directly with the DS institutional sector at that time. But since the business effectively posted its first quarterly loss since launch, and with cost pressures expected to persist in the second half, calls are growing for management to find a breakthrough.
Samsung Electronics also has a precedent of changing on-the-ground command amid mobile weakness. In 2015, then-President Shin Jong-kyun handed over the position of head of the wireless business unit, which he had held for six years, to President Koh Dong-jin. That followed a slowdown in smartphone growth and worsening profitability since 2014.
Shin remained head of the IM institutional sector and CEO, but practical command over the mobile business—product development, production, and sales—shifted to Koh. Although Samsung Electronics did not officially say this was a reprimand for poor results, foreign media and the industry at the time interpreted it as a leadership change due to declining mobile profits.
Currently, Roh Tae-Moon serves concurrently as CEO of Samsung Electronics, head of the DX institutional sector, and head of the MX business. President Choi Won-joon, as COO of the MX business, has overseen research and development and global operations. They are in positions responsible not only for product development but also for procurement, production, sales, and overall profitability management. Samsung Electronics also said cost pressures from higher mobile memory prices are expected to persist into the second half. It projected annual smartphone shipments would decline. While the company has not officially forecast wider losses, it also has not yet presented clear grounds that business conditions will markedly improve from the second quarter.
Kim Kyung-won, a distinguished professor in the business administration department at Sejong University, said, "Rising component prices are an external variable, but absorbing them through product pricing and mix, component procurement, and marketing expense management is the role of management," and added, "The fact that the business posted a loss despite higher smartphone sales and a strong dollar-won rate means the MX management failed to respond properly to rising costs."
Kim Yong-seok, a distinguished professor at Gachon University's College of Semiconductor, said, "What Roh Tae-Moon and the MX management need to prove in the second half is not how many Galaxies they can sell. The key is how much actual profit they can keep while maintaining unit sales and market share," adding, "The second half is a very important period, and if profitability recovers slowly, it could be seen not just as a one-quarter slump but as a lack of an MX business strategy."