Unlock Editor’s Digest for free
FT editor Roula Khalaf picks her favourite stories in this weekly newsletter.
Samsung Electronics expects its operating profit to rise more than 15 times in the second quarter as memory chip prices continue their recovery after falling last year due to strong demand for artificial intelligence products.
Friday’s stronger-than-expected forecast underscores a boom in data centers and AI development as big tech companies race to develop their own advanced AI models, driving demand for cutting-edge D-RAM chips such as high-bandwidth memory.
The world’s top memory chipmaker by sales saw its operating profit rise 1,452% to 10.4 trillion won ($7.5 billion) in preliminary figures for the April-June quarter, the highest since its third quarter of 2022. The figure was much better than analysts’ expectations of 8.8 trillion won, according to LSEG SmartEstimates. Sales are expected to have risen 23% to 74 trillion won from a year earlier.
Samsung’s chip division is expected to post an operating profit of up to 5 trillion won in the second quarter, compared with a loss of 4.4 trillion won a year earlier, analysts said.
Strong profits in the chip business offset deteriorating margins in the smartphone business, analysts said. Samsung’s flagship S24 smartphones with artificial intelligence features are selling well, but rising material and marketing costs are eating into the division’s profits.
Samsung plans to launch its latest foldable phones, equipped with AI features, next week in Paris to ward off growing competition from Chinese rivals in the high-margin segment.
“Memory chip prices are rising more than expected, offsetting declining margins in the smartphone sector,” Pak Yuak, an analyst at Kiwoom Securities, said in a recent report.
Prices of D-RAM chips rose 13-18% in the second quarter, while prices of Nand flash memory chips used for data storage gained 15-20%, according to market research firm TrendForce.
Samsung shares gained 1.4% Friday morning, buoyed by upbeat forecasts, but lagged rivals on concerns about its competitiveness in HBM chips. Samsung shares have risen about 9% this year, underperforming the 62.5% rise of domestic rival SK Hynix.
Samsung is struggling to catch up with SK Hynix and Micron Technology in the United States in mass production of the most advanced HBM chips. SK Hynix and Micron, which supply HBM chips to Nvidia, have said their HBM chip production capacity is exhausted for this year and next.
Samsung’s HBM chips have yet to pass Nvidia’s qualification tests, with its chief executive Jensen Huang saying last month that more engineering work was needed.
The good preliminary results come as Samsung’s 28,000-strong union threatens to launch a three-day strike on Monday, demanding higher wages and more public holidays, adding to the challenges facing the technology group.
The union has blamed Samsung’s recent weak performance on management. Samsung replaced its semiconductor chief last month in an attempt to weather what it described as a “chip crisis.” Chairman Lee Jae-yong made a two-week trip to the United States last month and met with executives from major customers including Meta, Qualcomm and Amazon to discuss cooperation in chips, AI and cloud services.
Samsung has been promoting its “one-stop service” for customers in an attempt to close the gap with TSMC in contract chip manufacturing, saying it can help customers make their AI chips faster by integrating its memory chip, foundry and packaging services. But some tech companies remain reluctant to place orders with Samsung because they compete with it in other areas.
Many analysts expect Samsung to begin supplying HBM chips to Nvidia in the second half of this year, but some remain skeptical about the company’s long-term business prospects.
“The company is struggling in terms of technological competitiveness as a number of top talents continue to leave the company,” said Park Ju-geun, head of 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.”
