SEOUL (Reuters) - Samsung Electronics on Friday warned of sluggish sales of its artificial intelligence chips in the current quarter due to U.S. export restrictions to China, and as it worked towards launching an improved version of its high-end chips.

Advanced chips used for AI have been the bright spot in the weak memory chip market, but rival SK Hynix is Nvidia's main supplier of high-bandwidth memory (HBM) chips used in AI graphics processing units, whereas Samsung has struggled to meet Nvidia's requirements.

The U.S. in December also launched a fresh crackdown on China's semiconductor industry, including restricting HBM chip sales. Samsung, which relied on Chinese customers for about 20% of HBM sales, according to analysts, was expected to be hit much harder than its peers.

"There will be some temporary restrictions in our HBM chip sales in the first quarter," said Kim Jae-june, executive vice president of Samsung's memory business, during an earnings call on Friday.

"We expect some impact on our HBM demand from not just U.S. restrictions on exports of high-end chips but also a shift in demand for improved chips by major clients," he said.

Samsung confirmed its operating profit was 6.5 trillion won ($4.48 billion) in the fourth quarter, down 29% from the third quarter.

The South Korean firm said it expected limited first-quarter earnings growth due to weak memory chip business conditions, as it continues to work towards providing high-end chips to Nvidia.

Samsung is also grappling with weak smartphone sales and said it aimed to revive mobile margins to above 10% this quarter, a sign that competition with Apple would intensify as the rivals roll out new phones with artificial intelligence features.

Shares in Samsung were down 2.2% in early trade after a four-day holiday break, versus a 0.75% drop in the wider market. SK Hynix shares were trading about 10% lower on concerns about the impact of low-cost Chinese AI model DeepSeek.

CHIP PROGRESS

Samsung, the world's largest memory chip maker, expected overall memory market demand to recover from the second quarter.

Analysts said Samsung's 2025 results and stock price will depend on whether it can supply volumes of advanced 12-layer HBM3E chips to Nvidia.

Samsung said in October that it was making progress in supplying HBM chips to Nvidia, but has not released any public updates since then.

"In the end, performance in the HBM market is very important ... Conventional memory prices are likely to remain weak throughout the year as sluggish demand from traditional consumers is unlikely to reverse rapidly," said Kim Kwang-jin, an analyst at Hanwha Securities.

SK Hynix and the world's largest contract chipmaker, Taiwan's TSMC, both reported record quarterly profit figures this month due to the AI boom, with SK Hynix topping Samsung's numbers for the first time.

Samsung's fourth-quarter operating profit was up 130% from a low base a year earlier when the memory chip industry was still struggling with its worst downturn in decades and in line with preliminary figures it reported earlier this month.

Operating profit in Samsung's mobile phone business fell 22% to 2.1 trillion won in the fourth quarter from a year earlier.

Its chip division swung to an operating profit of 2.9 trillion won, but that was less than half the 8.08 trillion won profit smaller peer SK Hynix reported during the same period.

Samsung said detailed investment plans for 2025 have not been finalised, but memory chip capital spending would be similar to last year's investment.

Its capital spending totalled 53.6 trillion won last year, including 46.3 trillion won on its chip business that includes logic and memory chips as well as a foundry business.

($1 = 1,447.5200 won)