Samsung Electronics (005930.KS), which opened a new tab on Friday, reported an operating profit increase of more than 15 times in the second quarter as a result of rising semiconductor prices spurred by the artificial intelligence boom. This improvement came from lower earnings a year earlier.
The biggest memory chip, smartphone, and TV manufacturer in the world reported that its operating profit increased from 670 billion won to 10.4 trillion won ($7.54 billion) during the quarter that ended on June 30.
The quarter was its most profitable since the third quarter of 2022, and the earnings above an 8.8 trillion won LSEG SmartEstimate, which is weighted toward projections from analysts who are more consistently correct.
According to analysts, Samsung’s better-than-expected earnings was probably caused by rising chip pricing as well as the company reversing prior inventory write-downs on its books because the value of its semiconductor inventory has increased in accounting terms.
According to Samsung, revenue increased to 74 trillion won in the second quarter, up 23% from the same period the previous year. In contrast to a 0.4% increase in the broader market (.KS11), Samsung shares opened 1.2% higher on the outlook. opens new tab.
On July 31, the business is expected to report comprehensive second-quarter earnings. Due in part to sluggish post-pandemic demand for devices that require memory chips, Samsung’s main semiconductor sector likely achieved its second straight quarterly profit, up from the first quarter. Memory chip prices have been growing between mid-2022 to the end of 2023.
Chip prices have been supported, according to analysts, by the explosive demand for high-end DRAM chips, such as high bandwidth memory (HBM) chips used in AI chipsets, chips used in data center servers, and chips in devices that run AI services.
According to data source TrendForce, memory chip costs increased in the second quarter by roughly 13% to 18% compared to the previous quarter for DRAM chips used in tech gadgets and 15% to 20% for NAND Flash chips used for data storage.
However, given the weak demand for older, legacy chips from the consumer electronics sector, TrendForce predicts a 5% to 10% price increase for both conventional DRAM and NAND Flash chips in the third quarter, which might arrest the upward trend in memory chip costs.
Analysts predicted that AI-driven demand for high-end chips, such as HBM and solid-state drives (SSDs), will outperform the rest of the market. However, Samsung has been lagging behind rival SK Hynix (000660.KS) in South Korea, which opens a new tab in the company’s supply of high-end HBM chips to clients like Nvidia (NVDA.O).
Rival memory chip maker Micron Technology (MU.O) in the United States surpassed predictions for its most recent quarter’s revenue last week, fueled by a spike in demand from the artificial intelligence (AI) sector. However, its forecast for the current quarter disappointed investors, who had been even more optimistic.
Investors are waiting to see if Samsung’s most recent fourth-generation HBM chips, which failed previous testing because of issues with heat and power consumption, will be approved to supply Nvidia.
Samsung tried to overcome what it called a “chip crisis” in May by replacing the head of its semiconductor division.
As of Thursday, shares of Samsung had increased by 8% year to date, while shares of SK Hynix had increased by 63%.
$1 equals 1,379.8700 won.