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Samsung Electronics expects to post a 10-fold increase in first-quarter operating profit as memory chip prices made a strong recovery after the industry’s worst downturn in decades last year.
The world’s largest memory chip maker by sales estimated on Friday that operating profit rose 931% to 6.6 trillion won ($4.9 billion) in preliminary figures for the first three months of this year. According to LSEG SmartEstimates, this result was better than analysts’ expectations at Won5.7tn. Sales increased 11.4% to Won71tn compared to the previous year.
The upbeat estimates mark Samsung’s highest earnings since the third quarter of 2022, as its chip division is likely to post its first profit in five quarters. Samsung shares were trading 0.7% lower Friday morning, after rising about 30% over the past year. Detailed results will be announced at the end of the month.
Production cuts by major manufacturers and strong demand for high-performance chips amid the AI boom have supported chip prices. According to data provider TrendForce, prices of DRAM memory chips increased by about 20% in the first quarter, while those of Nand flash memory chips, used for data storage, increased by 23-28%.
Analysts expect Samsung’s chip division to post an operating profit of about 900 billion won in the first quarter, compared to an operating loss of 2.2 trillion won in the December quarter.
“We are seeing a stronger-than-expected recovery in the memory cycle, with memory chip prices rising higher than expected,” said Roko Kim, an analyst at Hana Financial Investment. “It will be a year of maximum DRAM earnings with a surge in NAND prices.”
The recovery of the $160 billion memory chip market was highlighted by Micron’s strong sales forecast last month, with the US chipmaker forecasting record sales in 2025. Samsung’s shares were also supported by the easing concerns about its competitiveness in the high-bandwidth memory (HBM) sector, after Nvidia chief Jensen Huang said last month that his company was in the process of qualifying Samsung’s new HBM chips for its graphics processing unit.
Samsung is trying to catch up with rivals in high-margin chips used in artificial intelligence as it has followed domestic rival SK Hynix into mass producing HBM’s most advanced chips.
Kyung Kye-hyun, the company’s chief executive in charge of the chip business, said last month that Samsung was close to reclaiming leadership in HBM chips. During a shareholder meeting, he also said the company expects revenue of more than $100 million from its advanced chip packaging business this year.
“Samsung is making progress in the HBM business, which has been seen as its Achilles heel,” said Lee Seung-woo, an analyst at Eugene Investment & Securities.
Lee added that Samsung’s loss-making chip foundry business still weighs on the company’s earnings, but he expects the contract manufacturing division to become profitable in the second half of this year.
Samsung, which is building a foundry in Texas, is expected to receive at least $5 billion in grants from the United States, while domestic rival SK Hynix is investing around $4 billion in an advanced AI chip packaging plant in Indiana.
Samsung’s strong earnings were also driven by robust sales of its latest AI-powered smartphones. The company in January launched its Galaxy S24 Android phones that can run generative artificial intelligence capabilities “on the device,” helping Samsung regain the top spot in global smartphone sales in February.