Topline
Samsung Electronics reported a 933% annual increase in first-quarter operating profits, fueled by chip price recovery from a post-pandemic slump and rising demand for artificial intelligence-driven products—marking a turnaround after six consecutive quarters of profit decline.
Key Facts
Samsung posted $52.2 billion (71.9 trillion Korean won) in first-quarter sales, up 13% year over year, slightly falling under FactSet’s consensus estimates of $51.7 billion.
Operating profit soared by a whopping 933% year over year to $4.8 billion (6.6 trillion Korean won), beating analysts expectations of $4.5 billion and ending a series of declines that started in Q3 2022.
In the first quarter of 2023, the company’s operating profit reached a 14-year low due to a post-pandemic slump in memory chip prices; yet prices have started to rebound as demand for advanced High-Bandwidth Memory (HBM) chips—crucial for developing complex artificial intelligence applications—has increased amid the AI boom.
The company announced it will continue to increase HBM chips supply this year to “respond to growing demand for generative AI,” in a statement Tuesday.
Shares rose 1.4% in early Seoul trading, reflecting investors’ optimism about the semiconductor giant’s AI bet.
Key Background
Samsung’s semiconductor division rode out a challenging period starting in mid-2022 through 2023, as memory chip prices plummeted due to excess inventories built up during the pandemic to meet high consumer electronics demand. In response to weakened gadget demand amid rising post-Covid inflation, the company made significant cuts to its memory chip production to help normalize prices—which, by the first quarter, had risen by around 20%, according to Trendforce, a market research agency. Another boon was a surge in demand for Samsung’s HBM chips, essential for AI processing, which buoyed the semiconductor giant’s profitability. Last month, Nvidia’s CEO Jensen Huang said his company is in the process of qualifying Samsung’s new HBM chips for Nvidia’s graphics processing units—which led to a 6% rise in Samsung shares immediately after the announcement. CLSA analyst Sanjeev Rana recently noted that the average selling prices of memory chips are expected to “continue to climb further in 2024,” driven by “improving memory demand-supply, falling inventory, strong demand from AI applications and HBM production ramp-up.”
Tangent
Though a surge in profits signals a road to recovery after riding out its lowest annual earnings in 15 years in 2023, Samsung initiated an “emergency mode” this month, mandating a six-day workweek for its executives to tackle imminent challenges. These include a steep depreciation of the Korean won, rising oil prices and political risks from the upcoming U.S. presidential election—factors that could hinder Samsung’s strategic ambitions within South Korea’s export-driven semiconductor industry.
Crucial Quote
“In the second half of 2024, business conditions are expected to remain positive with demand—mainly around generative AI—holding strong, despite continued volatility relating to macroeconomic trends and geopolitical issues,” Samsung said in the earnings statement Tuesday.
What To Watch For
Whether Samsung’s new bet on AI-enabled smartphones and chips will solidify its leadership in both markets. Samsung has reclaimed its position as the largest smartphone maker in Q1—after being dethroned by Apple in 2023—fueled by its newly launched Galaxy S24 series in January. The flagship series, marked by its generative AI features, saw a strong market reception; global sales of S24 grew 8% year over year compared to last year’s Galaxy S23 series during their first three weeks of availability, according to Counterpoint Research. However, “it is too early to expect AI features to drive a strong replacement cycle,” noted Mehdi Hosseini, analyst at Susquehanna, as Chinese manufacturers have also become “more innovative and aggressive” with new 5G smartphone models. The company is also late in the AI memory chip game, where its South Korean competitor SK Hynix has taken an early lead as the primary supplier to Nvidia. Samsung said it plans to mass produce its next-generation HBM chips in the first half of 2024.
Further Reading
Samsung Releases New Feature Boost To Millions Of Galaxy Phones (Forbes)
Samsung’s Profit Surges After AI Boom Reverses Chip Losses (Bloomberg)
