Samsung Electronics has announced its estimated operating profit for the second quarter of this year, revealing a remarkable 15-fold increase compared to the same period last year. The surge in profit is due to rebounding semiconductor prices, fueled by the booming artificial intelligence (AI) industry. The company, which is the largest memory chip, smartphone, and TV maker globally, expects its operating profit to reach 10.4 trillion won ($7.54 billion) for the quarter ending in June. This figure surpasses the 8.8 trillion won LSEG SmartEstimate, which weighs forecasts from analysts known for their accuracy.
Analysts credit the better-than-expected results not only to the rise in chip prices but also to Samsung’s reversal of previous inventory writedowns. The value of the company’s chip inventory has rebounded, contributing to its strong financial performance. Samsung further anticipates that its revenue for the second quarter will have risen by 23% to 74 trillion won compared to the same period last year.
Following the release of the estimated earnings, Samsung shares saw a 1.2% increase, while the wider market experienced only a 0.4% rise. The company is scheduled to release its detailed second-quarter earnings report on July 31st.
The AI industry has been a significant driver for Samsung’s semiconductor division, which is expected to achieve consecutive quarterly profits. This improvement is a result of the ongoing increase in memory chip prices, which experienced a slump between mid-2022 and the end of 2023 due to weakened post-pandemic demand for devices that utilize such chips. The demand for high-end chips, particularly high bandwidth memory (HBM) chips utilized in AI chipsets, data center servers, and devices running AI services, has played a vital role in boosting chip prices.
In the second quarter, the prices of memory chips rose by about 13% to 18% for DRAM chips used in tech devices and by 15% to 20% for NAND Flash chips used in data storage, according to TrendForce, a data provider. However, the surge in memory chip prices may slow down in the third quarter, with TrendForce predicting a 5% to 10% price hike for both conventional DRAM and NAND Flash chips. This moderation is expected due to lackluster demand for older, legacy chips in the consumer electronics market.
Analyst Ko Yeongmin from Daol Investment & Securities highlights that investors will be particularly interested in Samsung’s outlook on legacy chips during the forthcoming earnings call, as this will give an indication of whether the chip industry recovery can sustain into the next year.
While the demand for AI-driven high-end chips, including HBM and solid-state drives (SSDs), is expected to outperform the overall market, Samsung has fallen behind its South Korean rival, SK Hynix, in terms of supplying high-end HBM chips to customers like Nvidia. However, U.S. memory chip competitor Micron Technology recently surpassed revenue estimates for its latest quarter, driven by increased demand from the AI industry.
Investors are also awaiting news on whether Samsung’s fourth-generation HBM chips will receive approval to supply Nvidia after previous tests highlighted issues with heat and power consumption. In May, Samsung replaced the chief of its semiconductor division in response to what it called a “chip crisis.”
Shares in Samsung have shown an 8% increase year-to-date, while SK Hynix shares have risen by 63% as of Thursday.
In summary, Samsung Electronics is primed to attain substantial profits in the second quarter, thanks to the surging demand for semiconductors driven by the AI boom. As chip prices continue to rise, the company’s financial performance has rebounded significantly, with its estimated operating profit reaching a record 10.4 trillion won. While the memory chip market may face a potential slowdown in the coming months, the demand for high-end chips is expected to remain strong. However, Samsung will need to address challenges in its HBM chip supply to compete effectively in this space. Investors and industry observers eagerly anticipate Samsung’s detailed earnings report later this month, hoping for further insight into the company’s outlook and the sustainability of the chip industry’s recovery.
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