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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.
Friday’s stronger-than-expected guidance underscores a boom in data centers and AI development as major tech companies race to develop their own advanced AI designs, fueling demand for more advanced D-Ram chips such as high-bandwidth memory.
The world’s largest maker of memory chips by estimated sales operating profit jumped 1,452 percent to 10.4 trillion ($7.5 billion) in preliminary figures for the April-June quarter, the highest since the third quarter of 2022. The figure was much better than analysts’ expectations of Won8.8tn, according to LSEG SmartEstimates. Sales are expected to have risen 23 percent to Won74tn from a year ago.
Samsung’s flagship chip division is estimated by analysts to have posted an operating profit of up to Won5tn in the second quarter, compared with a loss of Won4.4tn a year earlier.
Strong chip earnings had offset deteriorating margins in the smartphone business, analysts said. Samsung’s flagship S24 smartphones with AI 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 fend 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 business,” 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 flash memory chips used for data storage rose 15 to 20 percent, according to market researcher TrendForce.
Samsung shares gained 1.4 percent on Friday morning, boosted by upbeat guidance, but they have lagged rivals on concerns about its competition in HBM chips. Samsung shares are up about 9 percent this year, underperforming domestic rival SK Hynix by 62.5 percent.
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 have 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 union of 28,000 workers threatens to launch a three-day strike on Monday, demanding higher wages and more holidays, compounding the challenges facing the tech group.
The union blamed Samsung’s management for the company’s poor performance recently. Samsung replaced its semiconductor chief last month in an effort to overcome what it has described as a “chip crisis”, and Chairman Lee Jae-yong made a two-week trip to the US last month and met with the heads of key customers , including Meta, Qualcomm. and Amazon to discuss collaboration on chips, AI and cloud services.
Samsung has promoted its “one-stop service” for customers to try 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 chip packaging services. But some tech companies remain nervous about placing orders with Samsung as 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 in trouble in terms of its technological competitiveness, as a number of top talents continue to leave the company,” said Park Ju-geun, head of business research group Leaders Index. “The problem is unlikely to be resolved quickly as I don’t see any clear leadership or strategy to turn things around.”