On Friday, Samsung Electronics, the world’s largest memory chip maker, made a significant announcement. It estimated that its first-quarter operating profit would surge more than 10-fold, a remarkable achievement that surpasses market expectations. This positive outlook is not just a result of the rebound in chip prices but also the promising potential of its mobile division. The successful launch of its Galaxy S24 smartphones in January, featuring functions based on Google’s generative AI technology, is expected to significantly boost earnings this quarter. The company is scheduled to release detailed earnings on April 30, which will provide a comprehensive view of its financial performance and market position.
Samsung’s chip business faced a challenging year in 2020, swinging to a record loss as demand for gadgets that use memory chips plummeted. However, the company swiftly responded by cutting production this year, a strategic move that is now yielding positive results. “We are now starting to see a recovery in demand for DRAM and NAND flash (memory chip) products due to the widening awareness that the industry has reached the bottom,” said Samsung’s memory business executive vice president Jaejune Kim on a conference call. He further noted that Samsung’s flexible production cuts were instrumental in accelerating the recovery in memory chip prices.
Memory chip prices rose about 20% for DRAM chips used in tech devices and 23-28% for NAND flash chips for data storage this year, but they have recovered, helping lift profits across the sector. A growing global economy and increasing cybersecurity concerns have fueled this surge in demand for chips used to power generative AI machines, such as Apple’s iPhones and self-driving cars.
Despite the strong profit forecast, analysts caution that Samsung’s chip operations are still facing significant challenges. The company has yet to catch up with rivals SK Hynix and Micron in developing its HBM chip production technology, a crucial factor in making higher-yielding, more powerful chips for the latest foldable phones and data centers. Instead, Samsung has chosen to stick with a technology called non-conductive film, which has its own production issues, while Hynix and Micron have advanced to a mass-reflow molded underfill (MR-MUF) method. This disparity underscores the competitive landscape in the chip industry.
Samsung is also struggling to catch up with rivals in producing high-performance chips used for AI applications. It will likely trail them into 2024 when they begin shipments of their latest and most advanced HBM chips. Sources familiar with the matter said this is partly because of the flexibility in production that its competitors have gained through flexible production.
The guidance was not enough to cheer investors who sent Samsung shares down 1.3% early on Friday, in line with a 1.1% drop in the broader South Korean market (.KS11), as they await updates on the progress of the company’s high-end memory chip business that has been lagging behind its smaller rivals. The market was swayed by an overnight profit warning from AMD, facing weaker-than-expected revenue in its chip business. Its shares fell as much as 3.6%, the steepest in over two years.