Samsung reports huge profit jump on AI boom

Samsung reports huge profit jump on AI boom

Samsung Electronics predicts demand for artificial intelligence will hold firm and tighten supplies of some high-end chips, joining rivals to benefit from a strong rebound in the battered global memory chip market.

An upbeat outlook from the world’s largest memory chip maker sent its shares 1.8% higher on Tuesday after it reported a more than 10-fold jump in first-quarter operating profit.

But so far this year Samsung shares are down 0.8%, lagging SK Hynix’s 24% gain, as it seeks to catch up with smaller rivals in supplying high-end chips such as high-bandwidth memory (HBM) to AI leader Nvidia ( NVDA ).

“We plan to increase the supply of HBM-related chips in 2024 more than threefold compared to last year,” said Jaejune Kim, Samsung’s vice president in charge of the memory division, on the earnings call.

Samsung said it began mass production this month of its latest HBM chip for use in its generative AI chipset, called the 8-layer HBM3E. It seeks to capitalize on the AI boom that has benefited SK Hynix, which is the sole supplier of HBM3 chips to Nvidia.

Samsung said it plans to start making the 12-layer version in the second quarter, and expects its latest HBM3E product to account for two-thirds of its HBM output by the end of the year.

Analysts say the target is aggressive.

Samsung’s 8-layer HBM3E appears to be supplying Nvidia, while the 12-layer may go to AMD ( AMD ) and Nvidia, said Jeff Kim, head of research at KB Securities.
“Since Samsung’s technology is beneficial for high stacking, while SK Hynix has its advantage in 8 layers, there may be a division where Nvidia gets 12-layer products from Samsung and most 8-layer products from SK Hynix,” said Kim.

“Samsung is working hard to improve the yield of its 12-layer products,” he added.

Samsung did not immediately respond to a request for comment about its HBM customers.

Samsung also said it will increase its supply of high-end solid-state drive (SSD) products to meet AI server demand, and expects supply of high-end memory chips to be tighter by the end of the year due to capacity focused on HBM, echoing comments from SK Hynix last week.

Jump in operating profit
The South Korean company’s first-quarter revenue rose 13% to 71.9 trillion won ($52.14 billion), including a 96% jump in memory chip revenue to 17.49 trillion won as prices rebounded from a severe slump, partly due to a boom in AI.

Operating profit rose to 6.6 trillion won in January to March, up from 640 billion won a year earlier. It was the company’s highest operating profit since the third quarter of 2022.

The chip division, historically Samsung’s cash cow business that once accounted for two-thirds of its operating profit, swung to a profit of 1.91 trillion won in the March quarter from a loss of 4.58 trillion won a year earlier. It was the first gain since the third quarter of 2022.

The price of NAND flash chips used to store data increased by 23% to 28% in the first quarter compared to the previous quarter, while the price of DRAM chips used in technology devices increased by about 20%, according to data provider TrendForce.
Samsung’s mobile device business posted an operating profit of 3.51 trillion won in the first quarter, down from 3.94 trillion won a year earlier.

It shipped about 60 million smartphones in the quarter, in line with a year earlier but reclaiming its title as the world’s leading smartphone vendor from Apple ( AAPL ), which has seen sales decline in China.

Cost increases, including increased memory chip prices, reduced margins from the flagship Galaxy S24 smartphone launched in the quarter.

Samsung said AI functionality drove sales of the S24 phone, allowing the division to maintain double-digit profits in the first quarter. About 50% of customers said they bought S24 phones for AI functions, and 60% regularly use AI functions, the company said.