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April 30, 2024
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Samsung’s profits surge due to AI boom

Samsung Electronics is anticipating a sustained demand for artificial intelligence (AI), which is expected to tighten the supply of certain high-end chips. This prediction aligns with the broader trend of recovery in the global memory chip market.

The optimistic forecast from Samsung, the world’s largest memory chip manufacturer, propelled its shares up by 1.8% on Tuesday following a remarkable more than tenfold increase in first-quarter operating profit.

Despite this positive momentum, Samsung’s shares for the year are down by 0.8%, trailing behind SK Hynix’s impressive 24% gain. Samsung aims to catch up with its competitor in supplying top-of-the-line chips such as high bandwidth memory (HBM) to industry leader Nvidia.

Jaejune Kim, a Samsung vice president overseeing the memory division, outlined plans to ramp up the supply of HBM-related chips in 2024 by over three times compared to the previous year. Samsung has commenced mass production of its latest HBM chips, the 8-layer HBM3E, this month, targeting use in generative AI chipsets. The company intends to introduce the 12-layer version in the second quarter, with expectations that the latest HBM3E products will constitute two-thirds of its HBM output by the end of the year.

Analysts view Samsung’s targets as ambitious, particularly considering the competitive landscape and technological advancements. Jeff Kim, head of research at KB Securities, suggests a potential segmentation in the market where Nvidia might procure 12-layer products from Samsung, while SK Hynix continues supplying most 8-layer products.

Samsung is focused on enhancing the yield of its 12-layer product, indicating its commitment to maintaining a competitive edge in the market. The company’s HBM customers were not disclosed immediately.

Furthermore, Samsung plans to expand its offerings of high-end solid-state drive (SSD) products to meet the rising demand for AI servers. However, it anticipates tighter supply in high-end memory chips towards the end of the year due to capacity being directed towards HBM production.

In terms of financial performance, Samsung reported a 13% increase in revenue to 71.9 trillion won ($52.14 billion) in the first quarter, with a significant surge in memory chip revenue. Operating profit soared to 6.6 trillion won, marking the highest since the third quarter of 2022. The chip division, historically a major contributor to Samsung’s operating profit, swung to profit after facing losses a year earlier.

The company’s mobile devices business recorded a slight decrease in operating profit, attributed to rising costs, including increased memory chip prices. However, Samsung maintained its position as the world’s top smartphone vendor, with about 60 million smartphones shipped during the quarter.

AI functionalities embedded in Samsung’s flagship Galaxy S24 smartphones contributed to maintaining double-digit profitability in the first quarter. Approximately half of the customers cited AI functions as a primary reason for purchasing the S24 phones, with 60% regularly utilizing these features.

Overall, Samsung’s optimistic outlook on AI-driven demand and its strategic focus on high-end chip production reflect its efforts to capitalize on market opportunities and maintain competitiveness in the evolving tech landscape.

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