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Samsung forecasts 10-fold surge in profits as chip downturn eases

The logo of the Samsung Electronics Co. is seen during a media tour at Samsung Electronics' headquarter in Suwon, South Korea, Tuesday, June 13, 2023.
The logo of the Samsung Electronics Co. is seen during a media tour at Samsung Electronics' headquarter in Suwon, South Korea, Tuesday, June 13, 2023. Copyright Lee Jin-man/Copyright 2023 The AP. All rights reserved
Copyright Lee Jin-man/Copyright 2023 The AP. All rights reserved
By Indrabati Lahiri
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An artificial intelligence boom, production cuts by other manufacturers, as well as higher demand have all contributed to rising memory chip prices.

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Samsung Electronics, the biggest memory chip producer globally, revealed that it forecasts a 10-fold increase in Q1 2024 operating profit. Memory chip prices are currently rebounding, following the industry seeing a very disappointing performance last year. This was mainly due to declining demand for electronic goods, following the pandemic.

The company expects preliminary estimates for operating profit for the first quarter to jump about 931% to Won 6.6 trillion (€4.5 billion). If so, this will be better than the Won 5.7 trillion predicted by London Stock Exchange Group (LSEG)’s SmartEstimates.

Similarly, sales also increased 11.4% to Won 71 trillion year-on-year.  However, the complete results will be announced at the end of April.

Park Sung-soon, an analyst at Korea Investor Relations Service said, “Since revenue was mostly in line but operating profit beat expectations, the inventory valuation of NAND flash chips may have improved. Demand for NAND has improved, which may have improved margins as well.

“Initial response to new Galaxy S24 smartphones was also positive due to on-device AI, so if a greater-than-expected portion of the high-margin premium smartphones were sold, it would have an impact.”

If Q1 profits meet these positive expectations, the tech giant would see its highest earnings since Q3 2022. However, despite this upbeat sentiment, Samsung Electronics’ shares fell 1.67% to €1,175 on Friday morning, due to overall dampened sentiment in the South Korean market.

Both robust demand for high-performing chips, as well as several manufacturers slashing production, have contributed to the rising memory chip prices.

Roko Kim, an analyst at Hana Financial Investment, as reported by Financial Times, said “We are seeing a stronger than expected recovery in the memory cycle, with a higher than expected rise in memory chip prices. It will be a year of maximum Dram earnings with surging Nand prices.”

Samsung has also received increased attention, following Nvidia CEO Jensen Huang recently revealing that the latter was currently testing Samsung’s high bandwidth memory (HBM) chips for its graphic processing units (GPUs).

However, investors are still cautious regarding this side of the business, since Samsung has typically been behind rivals such as SK Hynix, mainly because of the former’s relatively late entry into this niche segment.

Now, in the wake of the recent Taiwan earthquake, both the above companies are likely to further raise their chip prices. This is likely to be because of global markets facing a shortage of chips, as Taiwanese production may see a dip in the near future at least.

Samsung’s generative-AI smartphone expected to boost Q1 earnings

Samsung’s new generative-AI smartphone, the Galaxy S24, launched in January, is also expected to contribute significantly to first quarter earnings. The phone is able to operate generative-AI features “on-device”, which has added to its demand and popularity. This also led to Samsung bagging the most smartphone sales worldwide in February.

Samsung has likely shipped about 57 million smartphones in the first quarter of 2024, according to Eugene Investments and Securities. If so, this would be an increase of approximately 8% from the last quarter.

Similarly, in the first three weeks following its launch, the Galaxy S24 models saw sales rising by about 8%, compared to the Galaxy S23 model, selling at an estimated $340 per unit.

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