Samsung flags eightfold jump in quarterly profit as AI chip demand pumps prices

Samsung flags eightfold jump in quarterly profit as AI chip demand pumps prices

• Samsung estimates 57.2 trillion won in Q1 operating profit vs 6.7 trillion won year earlier
• Expected profit beats 40.6 trillion won analysts’ estimate
• Chipmakers struggle to keep up with demand from AI data centres
• Middle East conflict sparks concerns about demand slowdown

SEOUL, April 7 (Reuters) – Samsung Electronics (005930.KS), on Tuesday projected its ​first-quarter earnings would exceed its entire profit for last year, beating expectations as booming demand for artificial intelligence infrastructure stretched supply and drove chip prices higher.

Samsung has ‌emerged as one of the major beneficiaries of the AI data centre boom that has constrained supply for traditional chips used in smartphones, PCs and game consoles and led to a near-doubling in chip prices in the first quarter alone.

The world’s largest memory chipmaker estimated an operating profit of 57.2 trillion won ($37.92 billion) for the January to March period, compared with an LSEG SmartEstimate of 40.6 trillion won and a more than eightfold jump from 6.69 trillion ​won a year earlier.

The record-high results nearly triple Samsung’s previous record quarterly operating profit of 20 trillion won, reached in the fourth quarter last year.

increase more than 50% in the current quarter as the shortage persists.

Kim Sunwoo, a senior analyst at Meritz Securities, said,

As customers anticipated further increases, actual ⁠contract prices came in higher, leading to the beat,

The company is also gaining 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 (.KS11). Rival ​SK Hynix’s (000660.KS), 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 No.2 maker of smartphones after Apple (AAPL.O), fared better than feared in its mobile division, posting a 4 trillion won profit, a slight decline from a year earlier.

The mobile business was supported by the use of low-cost component inventories, he said, but its margins will ​likely come under increasing pressure in the second quarter due to rising costs of memory chips and other components and materials amid the war in the Middle East.

Samsung said its revenue was ​expected to grow 68% to 133 trillion won in the January 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.

Ryu Young-ho, a senior analyst at NH Investment & Securities, said:

There are growing concerns about a peak-out in memory price increases. It does appear that we are now past the initial upcycle phase and into a later stage,

He said the key issue would be how Samsung structures long-term contracts with customers to sustain its semiconductor earnings.

TrendForce Senior ​Vice President Avril Wu, said:

In a sign of cooling growth, spot prices for DRAM chips eased last week, as end-user demand ​struggled to absorb elevated prices,

Spot DRAM prices refer ⁠to current market prices and trade at premiums over fixed-term contract prices.

These concerns, as well as the unveiling of memory-saving technology from Google called TurboQuant last month, have contributed to a selloff in memory chip stocks, with Samsung’s shares losing 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.

HIGH BANDWIDTH MEMORY GAINS GROUND

About a year ago, Samsung CEO apologised ​for its disappointing earnings and ⁠share price performance, after the tech giant lagged its rivals in supplying high bandwidth memory (HBM) chips critical to Nvidia’s (NVDA.O), AI chipsets.

But Samsung has been narrowing the gap with South Korean rival SK Hynix (000660.KS), by shipping its latest HBM4 chips to Nvidia in February.

However, Samsung’s soaring earnings stem mainly from the rebound in traditional chip demand fueled by AI inference, which allows AI models like ChatGPT to generate responses in real time, ⁠which 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 Sohn In-joon, an analyst at Heungkuk Securities.

He 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.

Reporting by Hyunjoo Jin and Heekyong Yang; Additional reporting by Miyoung Kim and Cynthia Kim; Editing by Sonali Paul

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Samsung flags eightfold jump in quarterly profit as AI chip demand pumps prices, source