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Samsung Electronics expects a more than 15-fold increase in second-quarter operating profit as memory chip prices continue their recovery from last year’s slump on strong demand for artificial intelligence products.
The stronger than expected guidance on Friday underscores a boom in data centres and AI development as big tech companies race to develop their own advanced AI models, sparking demand for cutting-edge D-Ram chips such as high-bandwidth memory.
The world’s largest maker of memory chips by sales estimated operating profit jumped 1,452 per cent to Won10.4tn ($7.5bn) in preliminary numbers for the April-June quarter, the highest since its third quarter of 2022. The figure was much better than analysts’ expectations of Won8.8tn, according to LSEG SmartEstimates. Sales are expected to have increased 23 per cent to Won74tn from a year earlier.
Samsung’s mainstay chip division is estimated by analysts to have posted an operating profit of up to Won5tn in the second quarter, compared with a Won4.4tn loss a year earlier.
Robust chip earnings had made up for deteriorating margins in the smartphone business, analysts said. Samsung’s flagship S24 smartphones with artificial intelligence features are selling well, but higher material and marketing costs are eating into the division’s profits.
Samsung plans to launch its latest foldable phones, with AI features, next week in Paris to stave off growing competition from Chinese rivals in the high-margin segment.
“Memory chip prices are rising higher than expected, offsetting falling margins in the smartphone business,” Pak Yuak, an analyst at Kiwoom Securities, said in a recent report.
D-Ram chip prices rose by 13 to 18 per cent in the second quarter while prices of Nand flash memory chips used for data storage gained 15 to 20 per cent, according to market researcher TrendForce.
Samsung shares gained 1.4 per cent on Friday morning, buoyed by the upbeat guidance, but they have lagged behind rivals on concern about its competitiveness in HBM chips. Samsung shares have risen about 9 per cent this year, underperforming a 62.5 per cent rally for domestic rival SK Hynix.
Samsung has been struggling to catch up with SK Hynix and Micron Technology of the US in mass producing the most advanced HBM chips. Both SK Hynix and Micron, which supply HBM chips to Nvidia, said their capacity for HBM chips was sold out for this year and next.
Samsung’s HBM chips are yet to pass Nvidia’s qualification tests, with its chief executive Jensen Huang saying last month that more engineering work was needed.
The strong preliminary results come as Samsung’s 28,000-strong labour union threatens to launch a three-day strike on Monday, demanding higher wages and more holidays, compounding the challenges that the tech group faces.
The labour union blamed Samsung’s management for the company’s recent weak performance. Samsung replaced its semiconductor chief last month in an effort to overcome what it has described as a “chip crisis” and chair Lee Jae-yong took a two-week trip to the US last month and met the heads of major clients including Meta, Qualcomm and Amazon to discuss co-operation in chips, AI and cloud services.
Samsung has promoted its “one-stop service” for clients to try to narrow the gap with TSMC in contract chipmaking, saying it can help customers make their AI chips faster by integrating its memory chip, foundry and chip packaging services. But some tech companies remain nervous about giving orders to Samsung as they compete with it in other fields.
Many analysts expect Samsung to start supplying HBM chips to Nvidia in the second half of this year, but some remain sceptical about the company’s long-term business prospects.
“The company is in trouble in terms of its technological competitiveness as a number of top talent continue to leave the company,” said Park Ju-geun, the head of business research group Leaders Index. “The problem is unlikely to be resolved anytime soon as I don’t see any clear leadership or strategy to turn things around.”