Samsung Anticipates End to Chip Downturn with Projected 10-Fold Increase in Profit

Samsung Electronics anticipates a significant increase in first-quarter operating profit, projecting a 10-fold jump due to a robust recovery in memory chip prices. The preliminary estimates suggest a surge of 931 percent to Won6.6 trillion ($4.9 billion), surpassing analysts' expectations of Won5.7 trillion. Additionally, sales increased by 11.4 percent to Won71 trillion compared to the previous year.

The optimistic projections signify Samsung's strongest earnings since the third quarter of 2022, with its chip division expected to report its first profit in five quarters. Despite this positive outlook, Samsung shares experienced a 0.7 percent decline in Friday morning trading, following a roughly 30 percent increase over the past year. Detailed results will be disclosed at the end of the month.

The surge in chip prices can be attributed to production cuts by major manufacturers and robust demand for high-performance chips driven by the artificial intelligence sector. In the first quarter, DRAM memory chip prices increased by approximately 20 percent, while prices for NAND flash memory chips, used for data storage, rose by 23-28 percent, according to data from TrendForce.

Analysts anticipate that Samsung's chip division will report an operating profit of approximately Won900bn in the first quarter, a significant improvement from the operating loss of Won2.2tn recorded in the December quarter."We are witnessing a stronger-than-expected recovery in the memory cycle, accompanied by a higher-than-anticipated increase in memory chip prices," stated Roko Kim, an analyst at Hana Financial Investment. "This year is expected to bring maximum earnings from DRAM, coupled with a surge in NAND prices."

The recovery of the $160 billion memory chip market was underscored by Micron's robust sales forecast last month, with the US chipmaker projecting record sales in 2025. Additionally, Samsung's shares received a boost from reduced concerns regarding its competitiveness in high-bandwidth memory (HBM) following Nvidia CEO Jensen Huang's announcement last month that his company was in the process of validating Samsung's new HBM chips for its graphics processing units.

Samsung is striving to narrow the gap with competitors in the lucrative market for chips used in artificial intelligence, an area where it has lagged behind domestic rival SK Hynix in mass-producing the most advanced high-bandwidth memory (HBM) chips.Kyung Kye-hyun, the company's chief executive overseeing its chip business, stated last month that Samsung was on the verge of seizing leadership in HBM chips. He also informed shareholders at a meeting that the company anticipated generating more than $100 million in revenue from its advanced chip packaging business this year.

"Samsung is making headway in the HBM business, which has traditionally been viewed as its weak point," remarked Lee Seung-woo, an analyst at Eugene Investment & Securities.Lee also noted that Samsung's chip foundry business, which has been operating at a loss, continues to impact the company's earnings. However, he anticipated that the contract manufacturing division would become profitable in the second half of this year.Samsung, which is constructing a foundry in Texas, is expected to receive at least $5 billion in grants from the US government. Meanwhile, domestic competitor SK Hynix is investing approximately $4 billion in an advanced AI chip packaging plant in Indiana.

Samsung's robust earnings have also been fueled by strong sales of its latest AI-powered smartphones. In January, the company introduced its Galaxy S24 Android phones, capable of running generative artificial intelligence features "on-device," helping Samsung reclaim the top spot in global smartphone sales in February.