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Samsung Electronics expects operating profit to rise more than 15-fold in the second quarter as memory chip prices continue to recover from last year’s decline due to strong demand for artificial intelligence products.
Friday’s better-than-expected outlook highlights a boom in data centers and AI development as major tech companies rush to develop their own advanced AI models, boosting demand for cutting-edge D-Ram chips such as high-bandwidth memory.
The world’s largest memory chip maker by revenue estimated operating profit rose 1,452 percent to Won10.4 trillion ($7.5 billion) in preliminary figures for the April-June quarter, the highest since the third quarter of 2022. The figure far beat analysts’ expectations of Won8.8 trillion, according to LSEG SmartEstimates. Revenue is expected to have risen 23 percent to Won74 trillion from a year earlier.
Analysts estimate that Samsung’s main chip division posted an operating profit of 5 trillion won in the second quarter, compared with a loss of 4.4 trillion won a year earlier.
Robust chip gains offset deteriorating margins in the smartphone business, analysts said. Samsung’s flagship S24 smartphones with artificial intelligence 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 in Paris next week, as the company aims to fend off growing competition from Chinese rivals in the highest-margin segment.
“Memory chip prices are rising faster than expected, offsetting declining margins in the smartphone industry,” Pak Yuak, analyst at Kiwoom Securities, said in a recent report.
According to market researcher TrendForce, prices of D-Ram chips rose 13 to 18 percent in the second quarter, while prices of Nand flash memory chips for data storage rose 15 to 20 percent.
Samsung shares rose 1.4 percent on Friday morning, buoyed by the optimistic forecast but lagged rivals on concerns about competitiveness in HBM chips. Samsung shares have risen about 9 percent this year, underperforming the 62.5 percent rally for domestic rival SK Hynix.
Samsung is struggling to keep up with US-based SK Hynix and Micron Technology in mass producing the most advanced HBM chips. Both SK Hynix and Micron, which supplies HBM chips to Nvidia, said their HBM chip capacity for this year and next was sold out.
Samsung’s HBM chips still need to pass Nvidia’s qualification tests, with 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 to demand higher wages and more days off, adding to the challenges facing the tech giant.
The union blamed Samsung’s management for the company’s recent poor performance. Samsung replaced its semiconductor chief last month in a bid to overcome what it called a “chip crisis” and Chairman Lee Jae-yong went to the U.S. for two weeks last month, meeting with heads of major 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 close the gap with TSMC in contract chipmaking, 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 the company 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 some top talents continue to leave the company,” said Park Ju-geun, head of business research group Leaders Index. “The problem is unlikely to be solved soon as I see no clear leadership or strategy to turn the tide.”