Samsung Electronics' operating profits jump 933% in the first quarter, exceeding expectations

Samsung Electronics said on Tuesday that first-quarter operating profit jumped 932.8% as memory chip prices rebounded on the back of optimism about artificial intelligence.

Here are Samsung's first quarter results versus LSEG estimates:

Revenue: 71.92 trillion KRW (about 52.3 billion US dollars), compared to 71.04 trillion KRW. Operating profit: 6.61 trillion KRW, compared to 5.94 trillion KRW.

Samsung's revenues for the quarter ending in March jumped by 12.81% compared to last year, while operating profits rose by 932.8% in the same period.

These numbers are in line with the company's guidance earlier this month, where Samsung said operating profits in the January-March quarter likely rose to KRW 6.6 trillion, up 931% from a year ago. The company expected first-quarter revenue to reach 71 trillion won.

The South Korean electronics giant saw record losses in 2023 as the industry suffered a post-Covid demand slump.

“The company achieved consolidated revenue of KRW 71.92 trillion on the back of strong sales of its flagship Galaxy S24 smartphones and higher memory semiconductor prices. Operating profit rose to KRW 6.61 trillion as the memory business returned to profit by meeting demand for high value-added,” Samsung Electronics said. In a statement on Tuesday.

Citi analysts said they see upside for Samsung's NAND flash memory business as a result of demand for artificial intelligence computing. In a note dated April 5, they reiterated their “buy” rating on the company with a target price of 120,000 won — a 56% upside from the closing price of 76,700 won on Monday.

NAND is another primary memory chip besides DRAM.

“We expect storage (HDD) to be the next bottleneck in AI computing, especially in AI training, and we expect Samsung Electronics to be one of the major beneficiaries of the momentum in SSD demand for AI training,” Citi analysts said.

Samsung is the world's largest manufacturer of dynamic random access memory (DRAM) chips, which are commonly found in a wide range of consumer devices including smartphones and computers.

Samsung said it expects demand for generative AI in the second quarter to be mostly driven, while mobile demand will remain stable. At the same time, it expects PC demand to be affected by slow seasonality, which could lead to customers adjusting inventory before new product launches in the second half of 2024.

Samsung said its semiconductor business recorded operating profits of 1.91 trillion won in the first quarter, compared to a loss of 4.58 trillion won in the same period last year and a loss of 2.18 trillion won in the fourth quarter.

“We assume the earnings surprise was driven by higher memory prices in a strong AI-driven upturn. We expect the company to steer toward a positive memory market outlook and underscore its readiness in the AI ​​era including HBM (12H HBM3E, HBM4) and Foundry/”Solution Packaging,” said SK Kim of Daiwa Capital Markets in email comments to CNBC on Monday, ahead of the earnings release.

As AI models become more complex and datasets are larger, these models need memory chips with higher capacities and faster speeds to meet these workloads.

Kim said in a report issued on April 5 that he expects another increase in memory chip prices to increase Samsung's profits in the second quarter against the backdrop of the artificial intelligence boom and the earthquake that struck Taiwan.

“In particular, we expect further price increases as a result of the earthquake that struck Taiwan,” Kim said, adding that the earthquake in early April temporarily affected prices. TSMC'sand Micronproduction.

To meet the demand for AI, Samsung said it began mass production of HBM3E 8H and V9 NAND in April. It plans to mass produce HBM3E 12H products, a 128GB product based on 1Bnm, and 32GB DDR5 memory during the second quarter.

Despite macroeconomic uncertainty and geopolitical tensions, the company expects the operating environment to remain “demand positive” – supported by productive AI – in the second half of the year.

Samsung also said that development of 3nm and 2nm processes is “progressing smoothly.” Samsung began mass production of 3nm chips in 2022 and plans to start mass production of 2nm chips in 2025.

The company said strong sales of Samsung's latest smartphone series, the Galaxy S24, helped boost revenues and operating profits for its mobile business. S24's AI features like Circle to Search have been popular among customers.

However, the company warned that smartphone demand and shipments may decline in the second quarter due to seasonality.

But the smartphone market could witness a recovery in the second half of the year as a result of “stabilizing consumer sentiment, expanding artificial intelligence products and services, and economic growth in emerging markets.”

Samsung said it will continue to expand Galaxy AI to include existing and new flagship products to drive further growth.

Many countries in the world are racing to manufacture advanced semiconductors.

Earlier this month, the Biden administration agreed to give Samsung up to $6.4 billion in funding to establish new chip production manufacturing capacity in Texas. Micron and TSMC are also preparing for grants to boost the U.S. chip industry after decades of chip production moving to Asia.

Samsung and TSMC are set to face competition from Japan's Rapidus, which recently received an additional $3.89 billion in subsidies from the Japanese government to mass-produce 2-nanometer chips starting in 2027.

There are growing concerns that Samsung Electronics risks losing its leadership position to rivals such as SK Hynix, the world's No. 1 company. 2 Memory chip manufacturer.

SK Hynix said on March 19 that it has become the first company in the industry to mass produce HBM3E, the next generation of high-bandwidth memory chips used in artificial intelligence chips. SK Hynix is ​​the main supplier of HBM3 chips for Nvidia's AI chips.

Mehdi Hosseini, senior technical hardware analyst at Susquehanna International Group, noted in early April that Samsung used to be the market leader in memory, smartphone and display innovations.

He added that Samsung is now “only benefiting from the recovery in the cycle.”

In the first quarter, Samsung was able to regain the top spot in smartphone shipments after losing the crown apple In 2023, according to the International Data Corporation.