Samsung witnesses significant surge in earnings due to AI expansion.
The upbeat outlook from the world's largest memory chip maker led to a 1.8% increase in its shares on Tuesday, as it reported a significant 10-fold rise in first-quarter operating profit.
However, Samsung's shares have lagged behind their smaller rival SK Hynix, which has gained 24% so far this year. This is due to Samsung's efforts to catch up with SK Hynix in the supply of top-end chips, like high bandwidth memory (HBM), to AI leader Nvidia (NVDA).
Jaejune Kim, a Samsung vice president in charge of the memory division, announced during an earnings call that Samsung plans to ramp up the supply of HBM-related chips in 2024 by more than three times compared to last year.
Samsung has started mass production of the latest HBM chips for use in generative AI chipsets, called 8-layer HBM3E. The company aims to profit off the AI boom that has benefited SK Hynix, which was the sole supplier of HBM3 chips to Nvidia.
Samsung expects to begin producing the 12-layer version during the second quarter and anticipates the latest HBM3E products to make up two-thirds of its HBM output by the end of the year.
Analysts have raised concerns over these targets, stating that they're quite aggressive. Samsung's 8-layer HBM3E seems to be supplying Nvidia with HBM chips, while the 12-layer version may go to both AMD (AMD) and Nvidia.
JS Kim, head of research at KB Securities, noted, "Samsung is working hard to improve the yield of its 12-layer product."
Samsung did not respond immediately to a request for comment on its HBM customers.
Samsung also announced its intentions to enhance high-end solid-state drive (SSD) offerings to meet AI server demand. It expects the supply of high-end memory chips to tighten toward the year-end due to capacity being allocated to HBM, which is similar to what SK Hynix stated last week.
Rising Operating Profit
Samsung's first-quarter revenue climbed 13% to 71.9 trillion won ($52.14 billion), with a 96% increase in memory chip revenue to 17.49 trillion won as prices rose sharply from a previous downturn, in part due to the AI boom.
Operating profit soared to 6.6 trillion won during January to March, an increase from 640 billion won a year prior. This marked Samsung's highest operating profit since the third quarter of 2022.
The chip division, which has historically been Samsung's primary source of profit, shifted from a loss of 4.58 trillion won a year ago to a profit of 1.91 trillion won in the March quarter, marking the first profit since the third quarter of 2022.
The prices of NAND flash chips, which store data, surged by 23% to 28% during the first quarter compared to the previous quarter, while the cost of DRAM chips used in tech devices experienced a 20% increase.
Samsung's mobile devices business recorded an operating profit of 3.51 trillion won in the first quarter, a decrease from 3.94 trillion won the year before. The company shipped approximately 60 million smartphones in the quarter, matching the previous year's numbers but reclaiming its title as the world's top smartphone vendor from Apple (AAPL), which is currently facing a sales decline in China.
Despite rising costs, including increased memory chip prices, Samsung maintained double-digit profitability in the first quarter due to the popularity of AI functions in its flagship Galaxy S24 smartphones, launched during the quarter. Approximately 50% of customers said they bought S24 phones for the AI features, with 60% regularly using them, according to Samsung.
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Source: edition.cnn.com
