Samsung Electronics announced that its first-quarter operating profit would more than tenfold, above market expectations, as chip prices began to rebound following a sharp decrease caused by an increase in artificial intelligence.
Samsung Electronics (005930.KS) estimated on Friday that its first-quarter operating profit would more than tenfold, exceeding market estimates, as chip prices began to recover from a severe drop due to a surge in artificial intelligence.
However, the guidance was insufficient to reassure investors, who drove Samsung shares down 1.3% early on Friday, in line with a 1.1% loss in the larger South Korean market (.KS11), opening a new tab as they waited for updates on development in its high-end memory chip division, which has lagged behind rivals.
That was a 931% increase from 640 billion won a year ago and would be Samsung’s greatest operating profit since the third quarter of 2022.
However, sales fell short of forecasts, presumably climbing 11% from the same period a year ago to 71 trillion won, less than the LSEG SmartEstimate of 72.3 trillion won.
“Because sales were mainly flat but operating profit exceeded estimates, the inventory valuation of NAND flash chips may have risen. Demand for NAND has increased, which may have boosted margins,” said Park Sung-soon, an analyst at Korea Investor Relations Service.
“The 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.”
The company is scheduled to announce detailed earnings on April 30.
The improved performance comes as its semiconductor division, which has traditionally been its largest earner, is set to report its first quarterly profit in five quarters as memory chip prices recover from a deep trough that began in mid-2022 owing to weak post-pandemic demand for electronics.
“The 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.”
The company is scheduled to announce detailed earnings on April 30.
The improved performance comes as its semiconductor division, which has traditionally been its largest earner, is set to report its first quarterly profit in five quarters as memory chip prices recover from a deep trough that began in mid-2022 owing to weak post-pandemic demand for electronics.
DRAM chip costs grew by roughly 20% in the first quarter compared to the previous quarter, while NAND flash chip prices rose by 23% to 28%, according to data source TrendForce.
The bullish forecast for memory chip demand, particularly an increasing hunger for chips such as high-bandwidth memory (HBM) used in AI chipsets, has propelled a 34% increase in Samsung shares over the previous year, outperforming the market’s 10% gain.
However, it has lagged its cross-town rival SK Hynix (000660.KS), whose shares increased by 122% during the same period, in the growing HBM industry, owing in part to its comparatively late debut into the area.
Analysts expect Samsung to catch up gradually, as it intends to ship its latest and most powerful HBM chips in the third quarter.
“Samsung is working hard on HBM, although nothing is evident right now… According to Kim Roko, an analyst at Hana Securities, Samsung’s stock has underperformed its competitors because of HBM.
“It may be difficult to increase market share with the current release of the 8-layer HBM3E, but no company has yet received approval for the 12-layer version, which is expected near the end of the year.” I believe Samsung will pass on what it has not been able to do and triumph with more advanced items.
Analysts believe Samsung’s mobile company will likely record a good profit after commencing sales of its new flagship Galaxy S24 smartphones in late January.
According to Eugene Investment & Securities, Samsung sold 57 million smartphones during the quarter, up 8% over the previous quarter, and the average selling price of Samsung handsets likely increased 30% to $340 quarter-on-quarter, boosting earnings.
During the first three weeks of availability, global sales of the Galaxy S24 handsets increased by 8% over the previous year’s Galaxy S23 series, according to data source Counterpoint.
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