Samsung Forecasts Eightfold Profit Surge Driven by AI Chip Demand
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Samsung Electronics projected its first-quarter earnings would surpass its entire profit from last year, exceeding expectations due to soaring demand for artificial intelligence infrastructure. This strong demand has strained supply and pushed chip prices higher.
The world's largest memory chipmaker estimated an operating profit of 57.2 trillion won (USD 37.92 billion) for the Jan. to March period. This figure compares to an LSEG SmartEstimate of 40.6 trillion won and represents a more than eightfold jump from 6.69 trillion won a year prior.
These record-high results nearly triple Samsung’s previous record quarterly operating profit of 20 trillion won, achieved in the fourth quarter last year. Samsung has emerged as one of the major beneficiaries of the AI data centre boom.
The boom has constrained the supply of traditional chips used in smartphones, personal computers, and game consoles, nearly doubling chip prices in the first quarter alone. Research firm TrendForce expects contract DRAM chip prices to rise more than 50% in the current quarter as the shortage persists.
Senior analyst Kim Sunwoo of Meritz Securities stated that actual contract prices rose as customers anticipated further increases, contributing to the strong performance. The company is also benefiting from a slump in the South Korean currency to a near 17-year low against the U.S. dollar, which has boosted repatriated earnings.
Samsung’s shares ended up 1.8% to 196,500 won per share on Tuesday morning, outperforming a 0.8% rise in the wider market. Rival SK Hynix’s shares finished 3.4% higher.
Kim estimated Samsung’s memory chip business generated 54 trillion won in operating profit, while its logic chip divisions posted a loss of 1.6 trillion won. The world’s second-largest smartphone maker, after Apple, performed better than feared in its mobile division, posting a 4 trillion won profit, a slight decline from a year earlier.
This mobile profit represented a slight decline from a year earlier and was supported by the use of low-cost component inventories. However, its margins will likely face increasing pressure in the second quarter due to rising costs of memory chips and other components and materials amid the conflict in the Middle East.
Samsung said its revenue was expected to grow 68% to 133 trillion won in the Jan. to March period. The company will release details of its first-quarter earnings on April 30.
The rise in energy costs since the start of the U.S.-Israeli war with Iran has sparked worries that cooling demand from AI data centres and other customers, as well as disruptions to the supply of key chipmaking materials, could slow the growth momentum for chip makers.
Senior analyst Ryu Young-ho of NH Investment & Securities noted growing concerns about memory price increases peaking, suggesting the market has moved beyond the initial upcycle phase. He added that the key issue would be how Samsung structures long-term contracts with customers to sustain its semiconductor earnings.
In a sign of cooling growth, spot prices for DRAM chips eased last week. TrendForce Senior Vice President Avril Wu observed that end-user demand struggled to absorb elevated prices.
These concerns, along with the unveiling of memory-saving technology from Google called TurboQuant last month, have contributed to a selloff in memory chip stocks. Samsung’s shares have lost 9% since the war began on February 28.
That said, its shares are still up over 60% this year, following a 125% jump the previous year. About a year ago, Samsung’s Chief Executive Officer apologised for disappointing earnings and share price performance after the tech giant lagged rivals in supplying high bandwidth memory (HBM) chips crucial to Nvidia’s AI chipsets.
Samsung has been narrowing the gap with South Korean rival SK Hynix by shipping its latest HBM4 chips to Nvidia in Feb. However, Samsung’s soaring earnings stem mainly from the rebound in traditional chip demand fuelled by AI inference.
AI inference, which allows AI models like ChatGPT to generate responses in real time, has exacerbated a shortage of commodity chips. HBM chips accounted for less than 10% of Samsung’s DRAM chip revenue in the first quarter, according to estimates by analyst Sohn In-joon of Heungkuk Securities.
Sohn expects Samsung’s total operating profit to reach another record high of 75 trillion won in the current quarter, underpinned by an over 30% rise in DRAM chip prices.
Samsung Electronics expects a more than eightfold jump in first-quarter operating profit, reaching 57.2 trillion won (USD 37.92 billion).
The surge is primarily driven by strong demand for AI infrastructure, which has raised chip prices.
Concerns persist about a potential peak in memory price increases and the impact of rising energy costs.
Source: REUTERS
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