Samsung Electronics’ operating profit rises 933% in the primary quarter, beating expectations

Samsung Electronics said Tuesday that first-quarter operating profit rose 932.8% as memory chip prices rebounded on AI optimism.

Here are Samsung’s first quarter results in comparison with LSEG estimates:

• Revenue: 71.92 trillion Korean won (roughly $52.3 billion) versus 71.04 trillion Korean won
• Operating result: 6.61 trillion Korean won versus 5.94 trillion Korean won

Samsung’s revenue rose 12.81% year-on-year within the quarter ended March, while operating profit rose 932.8% in the identical period.

The figures were in keeping with the corporate’s forecasts earlier this month, through which Samsung said operating profit was expected to rise to six.6 trillion Korean won within the January-March quarter, up 931% from a yr earlier. The company expected revenue of 71 trillion won for the primary quarter.

The South Korean electronics giant posted record losses in 2023 because the industry suffered from a collapse in demand following the coronavirus crisis.

“The company reported consolidated revenue of KRW 71.92 trillion, supported by strong sales of flagship Galaxy S24 smartphones and higher prices for memory semiconductors. “Operating profit rose to KRW 6.61 trillion as the memory business returned to profitability by meeting demand for high value-added products,” Samsung Electronics said in a opinion on Tuesday.

Citi analysts said they see upside potential for Samsung’s NAND flash memory business as a consequence of AI computing demand. In an April 5 note, they reiterated their “buy” rating on the corporate with a price goal of 120,000 won – up 56% from Monday’s closing price of 76,700 won.

In addition to DRAM, NAND is one other essential memory chip.

“We expect storage (HDD) to be the next bottleneck in AI computing, particularly AI training, and expect Samsung Electronics to be a key beneficiary of SSD demand dynamics for AI training,” said Citi analysts.

Samsung is the world’s largest manufacturer of dynamic random access memory (DRAM) chips, that are commonly present in quite a lot of consumer devices corresponding to smartphones and computers.

Samsung expects the second quarter to be driven primarily by demand for generative AI, while demand for mobile devices stays stable. Meanwhile, PC demand is anticipated to be impacted by slow seasonality, which could lead on to customers adjusting their inventory levels ahead of recent product launches within the second half of 2024.

In an earnings release on Tuesday, the corporate warned of accelerating geopolitical instability and continued cost increases for key components, particularly memory.

“Profitability is expected to decline slightly in the second quarter compared to Q1 and Q3, where we launched new flagship products this year. In response, we are focusing on cost competitiveness across the entire R&D, manufacturing and sales processes to achieve solid profitability,” Samsung said, adding that by expanding Galaxy AI, it will increase flagship sales will continue to increase.

Samsung said its semiconductor business posted an operating profit of 1.91 trillion Korean won in the first quarter, compared with a loss of 4.58 trillion Korean won in the same period last year and a loss of 2.18 trillion Korean won in the fourth quarter .

“We expect the earnings surprise to be driven by higher storage price appreciation due to an AI-driven strong recovery cycle. We expect the company to provide a positive outlook for the memory market and underscore its readiness for the AI ​​era, including HBM (12H HBM3E, HBM4) and foundry/packaging solution,” SK Kim of Daiwa Capital Markets said in an email to CNBC on Monday before the results were released.

As AI models become more complex and data sets become larger, these models require higher capacity and faster speed memory chips to handle these workloads.

Kim said in an April 5 report that he expects a further rise in memory chip prices to boost Samsung’s second-quarter profits due to an AI boom and the Taiwan earthquake.

“In particular, we expect prices to rise further due to the Taiwan earthquake,” Kim said, adding that the earthquake had a temporary impact in early April TSMC‘s and micron‘s production.

To meet AI demand, Samsung announced that it began mass production of HBM3E 8H and V9 NAND in April. It plans to mass-produce HBM3E 12H products and a 128GB product based on 1 billion nanometer 32GB DDR5 in the second quarter.

Despite macroeconomic uncertainty and geopolitical tensions, the company expects the operating environment in the second half of the year to “remain positive with demand” supported by generative AI.

Samsung also said that development of the 3-nanometer and 2-nanometer processes is “progressing smoothly.” Samsung began mass production of 3-nanometer chips in 2022 and plans to start out mass production of 2-nanometer chips in 2025.

Strong sales of Samsung’s latest Galaxy S24 smartphone series helped boost its mobile business’s revenue and operating profit, the corporate said. AI features on the S24 corresponding to Circle to Search, Photo Assist and Live Translate are popular with customers, Samsung said.

However, the corporate warned that smartphone demand and shipments could decline seasonally within the second quarter.

But the smartphone market could see a recovery within the second half of the yr as a consequence of “stabilizing consumer sentiment, expanding AI products and services, and economic growth in emerging markets.”

Samsung said it would proceed to expand Galaxy AI to existing and recent flagship products to drive further growth.

Many countries all over the world are racing to provide advanced semiconductors.

Earlier this month, the Biden administration agreed to present Samsung as much as $6.4 billion in funding to create recent chip manufacturing capability in Texas. Micron and TSMC are also poised to receive grants to spice up chip manufacturing within the U.S. after many years of shifting chip production to Asia.

Samsung and TSMC face competition from Japan’s Rapidus Corporation, which recently received $3.89 billion in additional subsidies from the Japanese government to mass produce 2-nanometer chips starting in 2027.

There are growing concerns that Samsung Electronics is liable to losing its leading position to rivals corresponding to world No. 1 SK Hynix. 2 memory chip manufacturers.

SK Hynix said on March 19 it was the primary within the industry to mass produce HBM3E, the following generation of high-bandwidth memory chips utilized in AI chipsets. SK Hynix is ​​the primary supplier of HBM3 chips for Nvidia’s AI chipsets.

Mehdi Hosseini, senior tech hardware analyst at Susquehanna International Group, identified in early April that Samsung was previously a market leader in storage, smartphone and display innovation.

Now Samsung is barely benefiting “from the economic recovery,” he added.

In the primary quarter, Samsung managed to regain the highest position in smartphone shipments after losing the crown Apple in 2023, in line with International Data Corp.