Samsung Profit Surge Fuels Plan to Boost High-End Memory Output
(Bloomberg) -- Samsung Electronics Co. reported its fastest pace of net income growth since 2010 and said it plans to double output of the high-end chips fueling the artificial intelligence boom next year.
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The world’s largest maker of memory and smartphones posted a six-fold surge in net income to 9.64 trillion won ($6.96 billion) in the June quarter, outpacing analysts’ projection of 7.97 trillion won. Samsung earlier this month reported a 15-fold rise in preliminary operating profit and a 23% rise in revenue, the biggest gain in sales since 2021.
Much of that growth came from the company’s semiconductor unit, which earned 6.45 trillion won in operating profit on rising memory prices and robust demand for high-bandwidth memory chips. Sales of such chips, which help conserve power while supporting faster processing speeds required by AI, rose more than 50% from the previous quarter, it said.
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Investors remain concerned about Samsung’s market position in the lucrative HBM arena, where it lags behind SK Hynix Inc. Samsung has struggled to get its latest chips certified by Nvidia Corp., the world’s most valuable chipmaker thanks to insatiable demand for AI accelerators.
But South Korea’s largest company is finally beginning to make progress. It has won the long-awaited approval from Nvidia for a version of its HBM chips called HBM3, and it also anticipates approval for the next generation, HBM3E, in two to four months, Bloomberg News reported this week.
Samsung said on the call it couldn’t comment on particular customers because of non-disclosure agreements, but it said it will ramp up production of HBM3E and its expects that product to account for 60% of all HBM sales by the fourth quarter.
“Samsung’s memory business has fully turned around and is back to business,” said Tom Kang, director at Counterpoint Research. High demand for server-related products led to the surprise profit, he said. The Galaxy S24’s performance also bolstered earnings beyond the smartphone division by lifting sales of camera sensors, chips, displays and display drivers, he said.
The company, which sits on cash reserves of more than 100 trillion won, said it plans to “actively respond” to demand and said its total HBM supply will double next year. Already, research and development expenses rose 11% to hit a new high of 8 trillion won in the June quarter.
Samsung’s shares rose around 1% Wednesday in Seoul. SK Hynix’s stock was little changed.
The beat suggests the global computing markets are emerging from a protracted post-Covid downturn, helped by a global wave of spending on AI development. Like SK Hynix, Samsung supplies the semiconductors used for storage in servers and mobile devices and also sells a plethora of consumer electronics.
Both DRAM and NAND prices increased during the quarter, lifting operating income at Samsung’s foundry, or contract chipmaking, business. That operation is expected to rebound in the second half of the year on growth in demand for AI and high-performance computing, the company said.
SK Hynix remains the leader in high-capacity memory essential to creating ChatGPT-like generative AI services. Its production capacity for HBM, which are paired with AI accelerators, is nearly fully booked through 2025, it’s said. That’s further fueled a more than 150% rally in SK Hynix shares since the start of 2023, more than triple Samsung’s performance.
In response, Samsung is prioritizing production of HBM and server memory, which means “supply of cutting-edge products for PC and mobile is expected to be constrained,” the company said in a statement.
That shift in focus comes as operating profit at the firm’s mobile and network business slipped 0.8%, with higher component prices eating into margins. The overall smartphone market will continue to grow, however, with AI driving premium demand, while lower-tier demand is expected to slow down, said Daniel Araujo, vice president of the company’s mobile division.
Samsung is mustering its resources at the same time that it’s grappling with growing labor unrest. Its biggest union has been organizing strikes and rallies around the company’s chipmaking facilities. The demonstrations have not caused production delays, it said.
What Bloomberg Intelligence Says
Samsung’s operating profit margin for semiconductors could further improve due to favorable pricing, after hitting a strong 23% in 2Q. Yet rival SK Hynix might continue to lead on that metric due to its strength in high bandwidth memory chips for AI. SK Hynix’s operating margin was 33% in 2Q.
- Masahiro Wakasugi, analyst
Click here for the research.
--With assistance from Vlad Savov and Youkyung Lee.
(Updates with executive comments. A previous version corrected the chart to show percentage appreciation instead of factor (100).)
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