Synopsis
Samsung estimated an operating profit of 57.2 trillion won ($37.92 billion) for the January to March period, compared with an LSEG SmartEstimate of 40.6 trillion won and a more than eight-fold jump from 6.69 trillion won a year earlier.Samsung has emerged as one of the major beneficiaries of the AI data centre boom that has constrained supply for traditional chips used in smartphones, PCs and game consoles and led to a near-doubling in chip prices in the first quarter alone.
The world's largest memory chipmaker estimated an operating profit of 57.2 trillion won ($37.92 billion) for the January to March period, compared with an LSEG SmartEstimate of 40.6 trillion won and a more than eightfold jump from 6.69 trillion won a year earlier.
The record-high results nearly triple Samsung's previous record quarterly operating profit of 20 trillion won, reached in the fourth quarter last year.
Research firm TrendForce expects contract DRAM (dynamic random access memory) chip prices to increase more than 50% in the current quarter as the shortage persists.
"As customers anticipated further increases, actual contract prices came in higher, leading to the beat," Kim Sunwoo, a senior analyst at Meritz Securities, said.
The company is also gaining from a slump in the South Korean currency to a near 17-year low against the U.S. dollar, which has boosted repatriated earnings.
Samsung's shares rose 1.4% to 195,800 won per share on Tuesday morning, slightly outperforming a 1.2% rise in the wider market.
Kim estimated Samsung's chip division generated 54 trillion won in operating profit, accounting for 95% of its total profit, while the world's No.2 maker of smartphones after Apple fared better than feared, posting a 4 trillion won profit in its mobile division, a slight decline from a year earlier.
The mobile business was supported by the use of low-cost component inventories, he said, but its margins will likely come under increasing pressure in the second quarter due to rising costs of memory chips and other components and materials amid the war in the Middle East.
Samsung said its revenue was expected to grow 68% to 133 trillion won in the January to March period.
The company will release details of its first-quarter earnings on April 30.
Headwinds
The rise in energy costs since the start of the US-Israeli war with Iran has sparked worries that cooling demand from AI data centres and other customers as well as disruptions to the supply of key chipmaking materials could slow the growth momentum for chip makers.
"There are growing concerns about a peak-out in memory price increases. It does appear that we are now past the initial upcycle phase and into a later stage," said Ryu Young-ho, a senior analyst at NH Investment & Securities.
He said the key issue would be how Samsung structures long-term contracts with customers to sustain its semiconductor earnings.
In a sign of cooling growth, spot prices for DRAM chips eased last week, as "end-user demand struggled to absorb elevated prices," said TrendForce Senior Vice President Avril Wu.
Spot DRAM prices refer to current market prices and trade at premiums over fixed-term contract prices.
These concerns, as well as the unveiling of memory-saving technology from Google called TurboQuant last month, have contributed to a selloff in memory chip stocks, with Samsung's shares losing 11% since the war began on February 28.
That said, its shares are still up 61% this year, following a 125% jump the previous year.
High bandwidth memory gains ground
About a year ago, Samsung CEO apologised for its disappointing earnings and share price performance, after the tech giant lagged its rivals in supplying high bandwidth memory (HBM) chips critical to Nvidia's AI chipsets.
But Samsung has been narrowing the gap with South Korean rival SK Hynix by shipping its latest HBM4 chips to Nvidia in February.
However, Samsung's soaring earnings stem mainly from the rebound in traditional chip demand fueled by AI inference, which allows AI models like ChatGPT to generate responses in real time, which has exacerbated a shortage of commodity chips.
HBM chips accounted for only 5% of Samsung's total chip revenue in the first quarter, while commodity DRAM and NAND chips represented the majority of the sales, according to estimates by Sohn In-joon, an analyst at Heungkuk Securities.
He expects Samsung's total operating profit to reach another record high of 75 trillion won in the current quarter, underpinned by a 30% rise in DRAM chip prices.
