Samsung Elec is likely to report a surprise increase in quarterly profit to record level
Written by Hyunjoo Jin
SEOUL, April 3 (Reuters) – Samsung Electronics, benefiting from cheap prices fueled by the AI boom, is expected to book a six-fold jump in January-March operating profit – a quarterly record and just shy of what it achieved in the entire previous business year.
Bolstered by what it calls an “unprecedented supercycle” of memory chips, Samsung is expected to report Tuesday a profit of 40.5 trillion won ($26.9 billion) on a 50% increase in revenue, according to LSEG SmartEstimate taken from 29 analysts.
In comparison, last year, the world’s largest maker of memory chips logged 43.6 trillion in operating income.
Some analysts are more bullish, as Citi, for example, predicts 51 trillion won.
“You couldn’t ask for things to get better,” said Ko Yeongmin, an analyst at Daol Investment & Securities, referring to the strength of the memory chip market.
SUBJECTS FROM THE WAR
Despite the big jump in earnings expectations, investors are likely to focus on any clues as to how much the war in the Middle East could affect Samsung’s growth.
Samsung, however, rarely says much about its outlook until it provides a more detailed breakdown of its earnings later in the month.
The war has driven up energy costs and threatens to disrupt the supply of key manufacturing inputs, which could force Big Tech firms to scale back their investments in intelligence data centers.
There were also signs of a drop in DRAM (volatile random access memory) prices as device manufacturers raised prices for smartphones, computers and other products, dampening consumer demand.
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These concerns, along with the unveiling of a memory storage technology from Google called TurboQuant last month, have affected the sale of memory chip stocks, with Samsung shares having lost 14% since the battle began on February 28.
That said, shares are still up 50% this year, boosted by Big Tech AI investment plans worth hundreds of billions of dollars.
BUT THERE IS STILL A CHIP SHORTAGE
Some experts remain optimistic about the idea, noting that there is a huge shortage of memory chips.
“We have seen a cooling (in memory chip spot prices) in the last 3-4 weeks yes. We believe it is temporary,” said Tobey Gonnerman, president of semiconductor distributor Fusion Worldwide.
“Demand and backlog remain strong,” he said, adding that it will be a long time before memory production meets full demand.
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Market researcher Trendforce also expects standard contract prices for DRAM chips to continue to expand. They doubled in the first quarter from the previous quarter and are expected to increase by 58-63% in the April-June period.
Samsung Electronics CEO Jun Young-hyun told shareholders last month that the chipmaker is working with major customers to switch to three- to five-year contracts to protect against potential fluctuations in demand.
OTHER BUSINESSES
While Samsung’s memory chip division will account for the lion’s share of its profits, its other businesses are expected to struggle.
Analysts said Samsung’s contract chip manufacturing business, which competes with TSMC, will remain in the red. However, this category has recently received a boost from a partnership with Nvidia that will see it develop new AI processors.
The smartphone and flat-screen segments are both likely to see profits drop by nearly half in the first quarter due to higher memory costs and intense competition, according to Kiwoom Securities.
Samsung is also likely to face rising wage costs, as its labor unions in South Korea have called for an overhaul of its bonus system and threatened to strike in May.
($1 = 1,507.4300 won)
(Reporting by Hyunjoo Jin; Additional reporting by Heekyong Yang; Editing by Miyoung Kim and Edwina Gibbs)
