Driven by a severe chip shortage as manufacturers scramble to meet the booming demand from artificial intelligence, leading to a sharp rise in memory prices, analysts anticipate Samsung Electronics will report a 160% increase in its fourth-quarter operating profit. Semiconductor prices have skyrocketed in recent months, as the industry's pivot towards AI-related chips has constrained the production of traditional memory, while demand for both traditional and advanced chips used to train and run AI models has surged. According to LSEG's SmartEstimate, which aggregates forecasts from 31 analysts, Samsung is expected to post an operating profit of 16.9 trillion won ($117 billion) for the October to December period. Compared to the 6.49 trillion won profit from the same quarter a year prior, this would mark the highest quarterly profit since the third quarter of 2018, which set a record high of 17.6 trillion won. Due to stronger-than-expected prices for traditional chips, some analysts have even revised their estimates for Samsung's Q4 operating profit upwards in recent weeks, surpassing 20 trillion won. The world's largest memory chipmaker is set to release its revenue and operating profit guidance on Thursday. Memory chip prices have surged dramatically. According to market research firm TrendForce, the price of a certain DDR5 DRAM chip in the fourth quarter increased by 314% compared to the same period last year. Contract prices for traditional DRAM are projected to have risen by 55% to 60% in the quarter (October-December). "As traditional DRAM prices continue to soar, Samsung—whose production capacity is predominantly concentrated in this area—stands to benefit more from the current price hike cycle," said TrendForce analyst Avril Wu. DRAM chips, widely used in servers, computers, and smartphones, temporarily store data and help programs and applications run smoothly and quickly. DDR5 DRAM is a traditional chip that is faster and more efficient than its predecessors. In December, Micron Technology (MU.US) forecast that its adjusted profit for the second quarter would be nearly double Wall Street's expectations. Micron's CEO projected that the memory market would remain supply-constrained beyond 2026, and in the medium term, the company expects to meet only half to two-thirds of the demand from several major customers. The surge in Samsung's profit signals a dramatic turnaround for the company. Just over a year ago, its CEO, Young Hyun Jun, was apologizing for disappointing earnings and performance, as Samsung had fallen behind its cross-town rival SK Hynix in supplying high-end chips to AI processor giant Nvidia. Samsung's stock price surged 125% last year, marking its largest annual gain in 26 years. Last Friday, Jun stated that Samsung's customers have given highly positive feedback on the competitive advantages of its next-generation High Bandwidth Memory (HBM) chips, specifically HBM4, quoting clients as saying "Samsung is back," which has helped propel Samsung's shares to continued gains and record highs in recent trading sessions. While he did not specify these clients, analysts suggest Samsung is making progress in supplying chips to Nvidia, potentially capturing market share from SK Hynix and Micron. Nvidia CEO Jensen Huang announced on Monday that the company's next-generation chips are already in full production. Nvidia stated that its Vera Rubin platform, which utilizes HBM4 chips, is expected to launch later this year. Analysts indicate that, as rising chip prices are likely to more than offset a slowdown in profits from Samsung's mobile business, the company's operating profit this year is expected to more than double, exceeding 200 trillion won. BNK Investment & Securities analyst Lee Min-hee expressed caution regarding Samsung's valuation, noting that soaring chip prices could dampen demand for PCs and smartphones. He also pointed out that AI data centers are increasingly reliant on debt financing for investments, which carries a "risk of demand slowing down." While the global memory chip shortage is a significant boon for Samsung's flagship semiconductor business, the spike in chip prices is squeezing the profit margins of its smartphone division, the company's second-largest revenue source. TM Roh, Samsung's co-CEO who oversees the mobile, TV, and home appliance businesses, told media, "As the situation is unprecedented, no company is immune to its impact." He added that Samsung is working to minimize the effect but conceded that it appears "unavoidable."
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