Driven by soaring chip prices fueled by the artificial intelligence boom, Samsung Electronics Co., Ltd. is expected to report a six-fold increase in first-quarter operating profit, setting a new quarterly record and approaching its total profit for the previous fiscal year. According to LSEG data, analysts predict that Samsung will announce a 50% rise in revenue and a profit of 40.5 trillion won (approximately $26.9 billion) next Tuesday, boosted by an "unprecedented super cycle" in memory chips. In comparison, the world's largest memory chip maker reported an operating profit of 43.6 trillion won last year. Some analysts are even more optimistic; for instance, Citi forecasts an operating profit of 51 trillion won. "The situation couldn't be better," remarked Ko Yeongmin, an analyst at Daol Investment & Securities, referring to the strong momentum in the memory chip market.
Despite the anticipated profit surge, investors are likely to focus more on the extent of the impact that the Middle East conflict may have on Samsung's growth trajectory. However, Samsung typically refrains from detailed commentary on its performance outlook until a more comprehensive earnings analysis is released later this month. The war has increased energy costs and risks disrupting the supply of critical production materials, which could, in turn, pressure major technology firms to reduce investments in AI data centers. Additionally, spot prices for DRAM chips have shown some signs of softening as device manufacturers have raised prices for smartphones, computers, and other products, dampening consumer demand. These concerns, along with the release of Google's memory-saving technology called TurboQuant last month, have contributed to a sell-off in memory chip stocks. Since the outbreak of the Iran conflict on February 28, Samsung's share price has fallen by 14%. Nevertheless, buoyed by multibillion-dollar AI investment plans from large tech companies, Samsung's stock has still gained 50% year-to-date.
Some experts remain optimistic about the outlook, pointing to a severe shortage of memory chips. "Over the past three to four weeks, we have seen some moderation in memory chip spot prices. But we believe this is only temporary. Demand and order backlogs remain strong," stated Tobey Gonnerman, President of semiconductor distributor Fusion Worldwide. He added that it takes considerable time for memory chip production to meet overall demand. Market research firm Trendforce also expects traditional contract prices for DRAM chips to continue surging. DRAM chip contract prices doubled in the first quarter compared to the previous quarter and are projected to rise by 58% to 63% between April and June. Last month, Samsung Electronics Co-CEO Young Hyun Jun told shareholders that the company is working with key customers to extend contract terms to three to five years to shield them from potential demand fluctuations.
Although Samsung's memory chip division will account for the bulk of its profits, its other businesses are expected to face challenges. Analysts indicate that Samsung's chip foundry business, which competes with Taiwan Semiconductor Manufacturing Company, is likely to remain in the red. However, the division recently received a boost by partnering with NVIDIA to jointly develop a new type of AI inference processor. According to Kiwoom Securities, profits from Samsung's smartphone and LCD display divisions may each decline by nearly half in the first quarter due to rising memory costs and intense market competition. Additionally, Samsung may confront rising wage costs, as its labor union in South Korea has demanded reforms to the bonus system and threatened to strike in May.
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