By Hyunjoo Jin and Heekyong Yang
SEOUL, April 7 (Reuters) – Samsung Electronics on Tuesday projected its first-quarter earnings would exceed its entire profit for last year, beating expectations as booming demand for artificial intelligence infrastructure caused supply bottlenecks and drove chip prices higher.
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.
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.
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.
Samsung’s shares jumped 4.6% to 202,000 won per share in early trading on Tuesday, outperforming a 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 posted a 4 trillion won profit in its mobile division.
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 due to 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.
HEADWINDS
The rise in energy costs since the start of the U.S.-Israeli war with Iran has sparked worries about cooling demand from AI data centres as well as disruptions to the supply of key chipmaking materials, which 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 with its latest HBM4 chips while benefiting from the rebound in traditional chip demand fueled by AI inference, which allows AI models like ChatGPT to generate responses in real time.
Last month, U.S. memory chip maker Micron Technology forecast third-quarter revenue above Wall Street expectations after posting record earnings in the second quarter on booming AI demand and tight supply.
(Reporting by Hyunjoo Jin and Heekyong Yang; Editing by Sonali Paul)
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