SEOUL: Samsung Electronics said on Tuesday (April 7) that its first-quarter profit would exceed last year’s overall profit, beating expectations as a surge in demand for artificial intelligence infrastructure caused supply bottlenecks and pushed up chip prices.
The world’s largest memory chip maker estimated its operating profit for the January-March period at 57.2 trillion won (US$37.92 billion), compared to the LSEG SmartEstimate of 40.6 trillion won, an increase of more than eight times from 6.69 trillion won in the same period last year.
This record performance is almost triple the record quarterly operating profit of 20 trillion won that Samsung achieved in the fourth quarter of last year.
Samsung has emerged as one of the key beneficiaries of the AI data center boom that has limited the supply of traditional chips used in smartphones, PCs and game consoles, and nearly doubled chip prices in the first quarter alone.
Research firm TrendForce expects prices for contract dynamic random access memory (DRAM) chips to rise more than 50% this quarter as the shortage continues.
“The actual contract price increased as customers expected further increases, leading to the beat,” said Kim Sun-woo, senior analyst at Meritz Securities.
Samsung’s stock price rose 4.6% to 202,000 won per share in early trading Tuesday, outpacing the broader market’s 2% rise.
Kim estimated that Samsung’s chip division generated 54 trillion won in operating profit, accounting for 95% of its total profit, while the world’s second-largest smartphone maker after Apple made 4 trillion won in profit from its mobile division.
He said the mobile business had been supported by leveraging low-cost component inventories, but margins were likely to come under further pressure in the second quarter due to rising costs for memory chips and other parts and materials due to the Middle East wars.
Samsung said it expects sales for the January-March period to rise 68% to 133 trillion won.
Headwind
Rising energy costs since the start of the U.S.-Israel war against Iran have raised concerns about cooling demand from AI data centers and disruptions to supplies of key chip-making materials, which could slow chipmakers’ growth momentum.
Ryu Yong-ho, senior analyst at NH Investment & Securities, said, “There are growing concerns that the rise in memory prices will peak out. It certainly seems like we have passed the early upcycle stage and entered the later stage.”
He said a key issue will be how Samsung structures long-term contracts with customers to maintain semiconductor revenue.
In a sign of slowing growth, spot prices for DRAM chips fell last week as “end-user demand struggled to absorb the higher prices,” said Avril Wu, senior vice president at TrendForce.
The DRAM spot price refers to the current market price and carries a premium over the fixed term contract price.
Those concerns, along with Google’s announcement last month of a memory-saving technology called TurboQuant, also contributed to the decline in memory chip stocks, with Samsung shares down 11% since the war began on Feb. 28.
That said, the company’s stock is up 61% this year, after rising 125% a year ago.
High-bandwidth memory becomes more popular
About a year ago, Samsung’s CEO apologized for disappointing business results and stock performance after the tech giant fell behind rivals in supplying high-bandwidth memory (HBM) chips essential to Nvidia’s AI chipsets.
But Samsung is closing the gap with South Korean rival SK Hynix with its latest HBM4 chip, benefiting from a recovery in demand for traditional chips fueled by AI inference, where AI models such as ChatGPT can generate responses in real time.
U.S. memory chip maker Micron Technology last month said it expected third-quarter sales to beat Wall Street expectations after posting record profits in the second quarter on rising demand for AI and tight supply.
