Samsung Electronics has projected a remarkable surge of 931% in first quarter operating profit to ₩6.6 trillion, exceeding analyst expectations. This marks their highest operating profit since the third quarter of 2022 and a turnaround from a low base in the first quarter of 2023 due to weak chip demand.
This surge is attributed to a significant to a significant rebound in chip prices, particularly DRAM and NAND flash used in AI chipsets, especially considering the improvement in the inventory valuation and increased demand for the latter.
The company is due to release detailed earnings on April 30.
Investors’ Response and Revenue
Despite the positive outlook, investors initially responded with caution, resulting in a 1.3% decline in Samsung shares early on Friday. The broader South Korean market also experienced a 1.1% drop as stakeholders await further updates on the company’s high-end memory chip business. Also, while the operating profit exceeded expectations, revenue fell slightly short, expected to rise by 11% year-on-year to ₩71 trillion, below a LSEG SmartEstimate of ₩72.3 trillion.
Reason being Improvement in Chips and Smartphones’ Sales
This remarkable surge in profits comes after DRAM chip prices witnessed a substantial 20% increase during the first quarter compared to the previous quarter, while NAND flash chip prices surged by 23% to 28%, according to data provider TrendForce. The optimistic outlook for memory chip demand, particularly in high-bandwidth memory (HBM) used in AI chipsets, has strengthened Samsung’s shares by 34% over the past year.
Additionally, the recent 7.2-magnitude earthquake in Taiwan is expected to tighten semiconductor supply, potentially leading to a sharper increase in memory chip prices than previously projected. This development could further bolster Samsung’s second-quarter earnings.
Park Sung-soon, an analyst at Korea Investor Relations Service, noted that the positive initial response to Samsung’s new Galaxy S24 smartphones, featuring on-device AI, could also have impacted profit margins positively. The potential sale of a greater-than-expected portion of premium smartphones could enhance profitability further. Analysts estimate that Samsung shipped 57 million smartphones during the quarter, up 8% from the previous quarter, with the average selling price rising by 30% to $340 quarter-on-quarter.
Looking Forward
Samsung has lagged behind its local competitor SK Hynix in the HBM market, with SK Hynix shares surging by 122% over the same period. Despite this, analysts anticipate Samsung gradually closing the gap, with plans to commence shipments of its latest and most powerful HBM chips in the third quarter.
