Samsung Electronics expects more than a 15-fold increase in operating profit in the second quarter as memory chip prices continue to rise due to strong demand for artificial intelligence products.
The surprisingly positive forecast from Friday underscores the boom in data centers and AI development, as major technology companies advance their cutting-edge AI models, driving the demand for state-of-the-art DRAM chips like High-Bandwidth Memory.
The world's largest memory chip manufacturer estimates that operating profit in the preliminary figures for the April-June quarter has increased by 1,452 percent to 10.4 trillion won ($7.5 billion), the highest level since the third quarter of 2022. This figure exceeded analysts' expectations of 8.8 trillion won, according to LSEG SmartEstimates. Revenue is expected to have risen by 23 percent to 74 trillion won compared to the previous year.
Analysts estimate that Samsung's main division, the chip sector, achieved an operating profit of up to 5 trillion won in the second quarter, compared to a loss of 4.4 trillion won in the previous year.
Strong chip revenues have offset declining margins in the smartphone business, analysts say. Samsung's flagship S24 series smartphones with AI features are selling well, but higher material and marketing costs are weighing on the division's profits.
Samsung plans to unveil its latest foldable phones with AI features next week in Paris to counter growing competition from Chinese manufacturers in the high-margin segment.
The prices for memory chips are rising more than expected and are compensating for the declining margins in the smartphone business," said Pak Yuak, an analyst at Kiwoom Securities, in a recent report.
The prices for DRAM chips rose by 13 to 18 percent in the second quarter, while the prices for NAND flash memory chips, which are used for data storage, increased by 15 to 20 percent, according to the market research firm TrendForce.
Samsung's stocks increased by 1.4 percent on Friday morning, supported by the optimistic forecast, but lag behind competitors, raising concerns about their competitiveness in HBM chips. Samsung's stocks have risen by about 9 percent this year, while domestic rival SK Hynix has seen an increase of 62.5 percent.
Samsung is struggling to catch up with SK Hynix and the US company Micron Technology in the mass production of the most advanced HBM chips. Both SK Hynix and Micron, which supply Nvidia with HBM chips, have stated that their capacities for HBM chips are sold out for this year and next year.
Samsung's HBM chips have not yet passed Nvidia's qualification tests, with their CEO Jensen Huang stating last month that further engineering work is needed.
The strong preliminary results come as Samsung's 28,000-member union threatens a three-day strike starting Monday to demand higher wages and more vacation days, further exacerbating the challenges for the technology company.
The union blames Samsung management for the company's recent poor performance.
Samsung advertises "One-Stop Service" for customers to close the gap with TSMC in contract manufacturing, claiming it can help customers produce their AI chips faster by integrating its memory chip, foundry, and chip packaging services. However, some tech companies remain nervous about giving orders to Samsung as they compete with it 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 facing issues regarding its technological competitiveness as many top talents continue to leave," said Park Ju-geun, head of the research group Leaders Index. "The problem is not expected to be resolved anytime soon, as I do not see clear leadership or strategy to change the situation.
