Samsung Profits Soar, Warns of Persistent Chip Shortage

Samsung Electronics reported a record operating profit for its fourth quarter, totaling USD 13.98 billion. This significant increase underscores the world's top memory chipmaker's strong pricing power.

Credit: SAMSUNG

The company warned of an acute chip shortage that is expected to continue for the foreseeable future. This shortage, driven by the artificial intelligence boom, benefits Samsung's core chip business but creates headwinds for its other units.

These affected units include smartphones and displays, which count Apple and Samsung as customers. Following the announcement, Samsung's shares saw a 1.2% decline.

Kim Jaejune, a Samsung memory chip business executive, told analysts that a significant shortage of memory products across the board is expected to continue. He predicted limited supply expansion in 2026 and 2027 while AI-related demand remains strong.

Samsung's total revenue for the quarter rose 24% to 93.8 trillion won. Operating profit from its chip business, the primary cash cow, surged 470% to 16.4 trillion won, accounting for over 80% of the total profit.

In contrast, mobile profit declined 10% to 1.9 trillion won, squeezed by rising chip prices. The mobile and display businesses anticipate a challenging year due to cost pressures from memory price hikes.

Sohn In-joon, an analyst at Heungkuk Securities, expects memory price increases to accelerate in the current quarter, potentially leading to surprise earnings. However, the memory cost burden will intensify on the mobile business.

Sohn further expects Samsung's profit to surge five-fold to approximately 35 trillion won in the current quarter compared to a year earlier.

Cho Seung, a Samsung mobile executive, stated the division plans to work with major partners to ensure stable product supply. The division will also drive resource efficiencies to minimise the risk of profit erosion.

Samsung co-Chief Executive Officer TM Roh described the acute chip shortage as "unprecedented." Roh indicated that the company did not rule out raising prices.

Ko Yeongmin, an analyst at Daol Investment & Securities, noted that how the mobile division defends margins as the year progresses will be a key issue. The display business also anticipates weaker smartphone demand in the current quarter due to surging chip prices.

Customers are expected to push for price cuts from the display business. Despite these concerns, display business profit more than doubled in the fourth quarter on robust sales of its major customer Apple's iPhone 17 series.

Samsung is already producing its next-generation high-bandwidth memory, HBM4, chips. The company plans to ship them in February at the request of a major customer, apparently Nvidia, as customers complete qualification testing.

Overall HBM revenue is expected to more than triple for the current year, as Samsung has secured orders for all of its HBM capacity.

Samsung has been working to catch up with its cross-town rival SK Hynix, a primary supplier for advanced memory chips crucial for Nvidia's AI accelerators, after Samsung faced supply delays last year.

SK Hynix downplayed rising competition, aiming to maintain its dominant market share in HBM4. The rival also stated large-scale production of its next-generation HBM was underway to meet customer requests after booking a record profit in its fourth quarter.

The race to build AI infrastructure has led chipmakers to divert manufacturing capacity towards high-bandwidth memory for AI servers. This diversion squeezes the supply of conventional memory chips.

Tobey Gonnerman, president of semiconductor distributor Fusion Worldwide, explained that chipmakers are able to raise prices aggressively. This is due to ample robust demand they cannot possibly fill.

Gonnerman added that chipmakers are in the enviable position of being able to dictate price, terms, and more than ever.

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• Samsung Electronics reported a record operating profit in its fourth quarter.

• The company warned of a persistent and acute chip shortage driven by AI demand, impacting mobile and display units.

• Samsung's chip business profit surged, while mobile profit declined due to rising chip costs.

Source: REUTERS