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Samsung Electronics expects a more than 15-fold increase in operating profit in the second quarter as memory chip prices continue to recover from last year’s plunge on strong demand for artificial intelligence products.
Stronger-than-expected guidance on Friday underscored a boom in data center and artificial intelligence development as major tech companies race to develop their own advanced AI models, fueling demand for high-end D-Ram chips such as high-bandwidth memory.
The world’s largest maker of memory chips by estimated sales saw operating profit jump 1,452 percent in preliminary April-June figures to 10.4 trillion won ($7.5 billion), the most since the third quarter of 2022. The figure was much better than analysts. ‘ expectation of Won8.8tn, according to LSEG SmartEstimates. Revenue is expected to rise 23 percent to Won74tn from a year earlier.
Analysts estimate that Samsung’s main chip division posted 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.
Robust chip profits offset deteriorating margins in the smartphone industry, analysts said. Samsung’s flagship AI-powered S24 smartphone is 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 in Paris next week to fend off growing competition from Chinese rivals in the high-margin segment.
“Memory chip prices are rising higher than expected, offsetting shrinking margins in the smartphone industry,” Pak Yuak, an analyst at Kiwoom Securities, said in a recent report.
Prices of D-Ram chips rose 13 to 18 percent in the second quarter, while prices of Nand memory chips used for data storage rose 15 to 20 percent, according to market research firm TrendForce.
Samsung shares rose 1.4 percent on Friday morning, buoyed by an upbeat outlook but trailing rivals on concerns about their competitiveness in HBM chips. Samsung shares have gained about 9 percent this year, less than domestic rival SK Hynix’s 62.5 percent gain.
Samsung is trying to catch up with SK Hynix and Micron Technology of the US in mass production of the most advanced HBM chips. Both SK Hynix and Micron, which supply Nvidia’s HBM chips, said their capacity for HBM chips was sold out for this year and next year.
Samsung’s HBM chips have yet to pass Nvidia’s qualification tests, with its CEO Jensen Huang saying last month that more engineering work is needed.
The strong preliminary results come as Samsung’s 28,000-member union threatens to launch a three-day strike on Monday, demanding higher wages and more holidays, adding to the challenges facing the tech group.
The union blamed Samsung’s management for the company’s recent poor performance. Samsung last month replaced its semiconductor chief in an effort to overcome what it described as a “chip crisis” and chairman Lee Jae-yong made a two-week trip to the US last month to meet with the heads of major clients including Meta, Qualcomm. and Amazon to discuss cooperation in chips, artificial intelligence and cloud services.
Samsung has touted its “one-stop service” for clients to try to close the gap with TSMC in contract chip manufacturing, saying it can help customers speed up their AI chips by integrating its memory chips, foundries and chip packaging services. But some tech companies remain nervous about awarding contracts to Samsung because they compete with it in other areas.
Many analysts expect Samsung to start 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 with technology competitiveness as a number of top talents continue to leave the company,” said Park Ju-geun, head of business research group Leaders Index. “It is unlikely that the problem will be solved immediately because I do not see any clear leadership or strategy to turn things around.”