Samsung Eyes Significant Profit Jump Amid AI Chip Demand
- tech360.tv
- 2 days ago
- 3 min read
Samsung Electronics anticipates a 160% increase in its fourth-quarter operating profit, driven by a chip shortage that has significantly raised memory prices. This surge is in response to booming demand for artificial intelligence (AI).
Semiconductor prices have climbed as the industry shifts to AI-related chips, which has constrained production for traditional memory. Demand for both conventional and advanced chips for AI models continues to rise.
Samsung is expected to report an operating profit of 16.9 trillion won (USD 11.7 billion) for the October to December period. This estimate comes from 31 analysts via LSEG SmartEstimate.
This projected figure compares with 6.49 trillion won from a year earlier. It would represent the highest quarterly profit since the third quarter of 2018, which recorded 17.6 trillion won.
Some analysts have recently increased their profit estimates for Samsung's fourth quarter to more than 20 trillion won. This adjustment follows stronger-than-expected prices for traditional chips.
The world's leading memory chip manufacturer is set to release its estimates for revenue and operating profit on Thursday.
Prices for a type of DDR5 DRAM chip escalated by 314% in the fourth quarter compared to the previous year, according to data from market researcher TrendForce.
TrendForce forecasts that conventional DRAM contract prices will climb by 55% to 60% in the current quarter, relative to the October to December period.
TrendForce analyst Avril Wu stated that as conventional DRAM prices continue to surge, Samsung, with its production capacity concentrated in this segment, stands to gain significantly from the current price upcycle.
DRAM chips are crucial for servers, computers, and smartphones, enabling temporary data storage and ensuring smooth operation of programmes and applications. DDR5 DRAM, a conventional chip, is faster and more efficient than its predecessor.
Micron Technology previously forecast its second-quarter adjusted profit at nearly double Wall Street estimates.
Micron Chief Executive Officer Sanjay Mehrotra expects memory markets to remain tight beyond 2026. He anticipates meeting only half to two-thirds of demand from several key customers in the medium term.
Samsung's substantial profit signals a dramatic turnaround, occurring just over a year after Chief Executive Officer Jun Young-hyun apologised for the company's disappointing earnings and performance. At that time, it lagged its rival SK Hynix in supplying high-end chips to Nvidia, the dominant maker of AI processors.
Samsung shares increased by 125% last year, marking their largest annual percentage gain in 26 years.
Jun previously noted that Samsung customers have praised the competitive advantage of its next-generation high-bandwidth memory (HBM) chips, HBM4. He quoted them saying, "Samsung is back," which helped extend a rally in the company’s shares to record highs in recent sessions.
While Jun did not specify these customers, analysts suggest Samsung is progressing in supplying chips to Nvidia, potentially gaining market share against SK Hynix and Micron.
Nvidia Chief Executive Officer Jensen Huang stated that the company’s next generation of chips is in full production. The Vera Rubin platform, which will incorporate HBM4 chips, is scheduled for arrival later this year, according to Nvidia.
Analysts project Samsung's operating profit to more than double this year, exceeding 100 trillion won. They believe the chip price rally will more than offset slowing profit in its mobile business.
Lee Min-hee, an analyst at BNK Investment & Securities, expressed caution regarding Samsung's valuations. He cited concerns that surging chip prices could reduce demand for PCs and smartphones, and highlighted risks of a demand slowdown for AI data centres increasingly relying on debt for investments.
While the global memory chip shortage benefits Samsung's primary semiconductor business, escalating chip prices are tightening margins in its smartphone division, which is its second-largest revenue source.
Samsung Co-Chief Executive Officer TM Roh, who oversees the company’s mobile, TV, and home appliance businesses, told Reuters that this unprecedented situation means no company is immune to its impact, and they are striving to minimise an impact that appears "inevitable."
Samsung expects a 160% increase in fourth-quarter operating profit, driven by high demand for AI chips.
The company's estimated operating profit for the period is 16.9 trillion won (USD 11.7 billion), its highest since 2018.
Chip prices for DDR5 DRAM jumped 314% compared to the previous year, with further increases expected.
Source: REUTERS