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 strong demand for the Galaxy S26 series and the mid- to low-priced Galaxy A series, but the company failed to absorb higher costs for components such as memory, resulting in a 700 billion won operating loss in the Mobile eXperience (MX) and network businesses.
The issue is that the loss did not come because smartphones did not sell. Even after increasing unit sales and sales, the company failed to turn a profit. It is a core role of management to defend profitability by reflecting higher costs in prices and product mix, and by adjusting component sourcing and marketing expense. Because even the fallback argument of weak sales does not apply, concerns are expected to deepen for Roh Tae-Moon, head of the DX division and head of the MX business, and Choi Won-joon, MX chief operating officer (COO). Critics say management should present concrete solutions on what to change to prevent losses, rather than offering only the boilerplate explanation that higher component prices caused the first loss.
◇ Galaxy phones sold well but no profit was left
According to the second-quarter 2026 results released by Samsung Electronics on the 30th, the MX and network businesses posted sales of 33.2 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 a combined figure for MX and network, not MX alone. However, the network business improved from both a year earlier and the previous quarter on the back of increased overseas sales. By contrast, even though MX sales rose 14% year over year to 32.3 trillion won, the combined result turned to a loss. It means MX profitability deteriorated enough to more than offset improvements 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 discontinuing the Galaxy Note 7 were reflected, the IT and Mobile (IM) institutional sector, which then included smartphones and network, recorded 100 billion won in operating profit. The surplus maintained even amid the unprecedented discontinuation of a product has now collapsed. Nor were smartphone sales weak. Samsung Electronics said MX sales increased on solid sales of the Galaxy S26 series and expanded sales of the Galaxy A series. Smartphone shipment volumes also grew from the previous quarter. But as prices of key components, including memory, surged, topline growth did not translate into profit. The MX business loss illustrates the "paradox of the memory boom" unfolding inside Samsung Electronics.
◇ Memory price hikes were foreshadowed… hard to blame only "costs"
It is hard to see the rise in memory prices as an unforeseen variable that MX management could not have anticipated. Since last year, there have been projections that demand for AI Server Memory for AI servers 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 finds hard to control. However, extending purchase contracts in advance, diversifying suppliers, adjusting product prices and specifications, and controlling sales incentives and marketing expense fall within the realm of management. If management foresaw higher memory prices but failed to timely adjust pricing policy, product mix, and component sourcing strategy, it is hard to shift all responsibility for the loss to the external environment.
Competitors are already moving to diversify their supply chains. Apple has reportedly asked the U.S. government to allow it to use products from China's Changxin Memory Technologies (CXMT) outside the United States to address higher memory prices and supply shortages. Regardless of whether this is ultimately adopted or its quality competitiveness, it signals a move to avoid passively 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 is optimal in terms of cost competitiveness. Management should explain whether it can secure multiple suppliers, especially for low- and mid-priced products, and whether it can reduce expense through long-term supply contracts or specification adjustments.
◇ "Sell more foldables and cut costs"… a generic plan with no numbers
In its second-quarter earnings conference call on the 30th, Samsung Electronics laid out a second-half plan centered on expanding premium product sales and improving expense efficiency. 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 would reallocate resources across all areas including procurement, sales, and research and development, and flexibly adjust product mix and channel operations based on profitability.
However, this is close to a prescription repeated whenever smartphone profitability worsens. Samsung Electronics did not disclose concrete targets such as how much it would cut costs, which products' prices or specifications it would adjust, how it would diversify suppliers, or by how much it would reduce marketing expenses and sales incentives.
Expanding premium products is not a cure-all, either. While high-end smartphones carry higher selling prices, they also use high-capacity memory and high-spec components, which can make them more susceptible to component price increases. Even if foldables become hits, allowing for product mix improvements, their share of total smartphone sales remains limited, and they require upfront marketing and distribution support expense at launch.
There is also a chance that expanding market share will clash with defending profitability. If price discounts, subsidies, and marketing expenses are increased to boost unit sales, the loss could widen. Conversely, if the rise in component costs is passed 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 make on each device sold.'"
◇ Leadership changes during the chip crisis and during MX weakness
Samsung Electronics has precedent for replacing business heads when competitiveness wavered. In May 2024, as concerns grew over delayed responses to high-bandwidth memory (HBM) and weakening foundry competitiveness, Samsung Electronics abruptly replaced then-DS division head Kyung Kye-hyun with Vice Chairman Jun Young-hyun. It is difficult to directly compare the MX situation with the DS institutional sector at that time. However, given that the business effectively posted a quarterly loss for the first time since its inception and that cost pressures are expected to persist in the second half, there are growing calls for management to find a breakthrough.
Samsung Electronics also has precedent for changing on-the-ground command amid mobile weakness. In 2015, then-President Shin Jong-kyun handed over the wireless business chief role he had held for six years to President Koh Dong-jin. That came after a slowdown in smartphone growth and worsening profitability since 2014.
Shin remained head of the IM institutional sector and CEO, but de facto control of the mobile business, including product development, production, and sales, shifted to Koh. Although Samsung Electronics did not officially describe this as disciplinary action due to poor results, foreign media and the industry at the time interpreted it as a leadership change stemming from declining mobile profits.
Currently, Roh Tae-Moon serves concurrently as Samsung Electronics CEO, head of the DX institutional sector, and head of the MX business. President Choi Won-joon, as MX COO, has overseen research and development and global operations. Their roles carry responsibility across procurement, production, sales, and overall profitability management, not just product development. Samsung Electronics projected that cost pressures from higher mobile memory prices would persist into the second half. It also forecast that annual smartphone shipments would decline. While the company did not officially signal a widening loss, it has yet to present clear grounds that business conditions will improve markedly from the second quarter.
Kim Kyung-won, a distinguished professor of business administration at Sejong University, said, "Higher component prices are an external variable, but absorbing them through product pricing and mix, component sourcing, and marketing expense management is the role of management."
Kim Yong-seok, a distinguished professor at Gachon University's College of Semiconductor, said, "What Roh Tae-Moon and other MX executives must prove in the second half is not how many Galaxy phones they can sell. The key is how much actual profit they can make while maintaining shipments and market share."