Samsung Electronic’s Q1 profit zooms amid strong chip demand

Samsung Q1 profits: Samsung Electronics anticipates a major surge in first-quarter operating profit, surpassing market projections by more than 10-fold, driven by a resurgence in chip prices amid the artificial intelligence boom.

However, this positive guidance failed to buoy investor sentiment, with Samsung shares slipping 1.3 per cent early on Friday, in line with a broader 1.1 per cent decline in the South Korean market. Investors are awaiting updates on the progress of Samsung's high-end memory chip business, which has been trailing behind competitors.

The tech giant estimates its operating profit for the first quarter to reach a better-than-expected 6.6 trillion won ($4.89 billion), marking a 931 per cent increase from the previous year and representing its highest operating profit since the third quarter of 2022. Nevertheless, revenue fell short of expectations, likely rising 11 per cent year-on-year to 71 trillion won, slightly below market estimates.

Higher inventory valuation 

Analysts attribute the stronger-than-expected performance to improved inventory valuation of NAND flash chips, as well as positive initial responses to the new Galaxy S24 smartphones, featuring on-device AI. Sales of high-margin premium smartphones could have contributed significantly to the upbeat outlook.

Samsung's chip division, its primary revenue generator, is poised to report its first quarterly profit in five quarters, as memory chip prices rebound from a prolonged downturn triggered by weak post-pandemic demand for electronic devices. DRAM chip prices surged approximately 20 per cent during the first quarter, while NAND flash chip prices rose by 23 per cent to 28 per cent, according to TrendForce.

Despite a 34 per cent increase in Samsung shares over the past year, the company has trailed behind its competitor SK Hynix, particularly in the high-bandwidth memory (HBM) market. However, analysts anticipate Samsung's gradual catch-up, with plans to commence shipments of its latest and most powerful HBM chips in the third quarter.

The recent 7.2-magnitude earthquake in Taiwan is expected to further tighten semiconductor supply, potentially leading Samsung and SK Hynix to implement sharper price hikes for memory chips than previously anticipated, which could bolster second-quarter earnings.

In the mobile business, Samsung is likely to report robust profits following the launch of its flagship Galaxy S24 smartphones. Analysts estimate that Samsung shipped 57 million smartphones during the quarter, with an average selling price increase of 30 per cent quarter-on-quarter to $340, supporting profitability.

Counterpoint data indicates that global sales of Galaxy S24 smartphones increased by 8 per cent compared to the previous year's Galaxy S23 series during the first three weeks of availability.

(With Reuters inputs)