News & Analysis

Samsung profits soar by more than 900% amid AI chip boom

5th April 2024
Kristian McCann

Smartphone giant Samsung has reported a significant surge in its profits for the first quarter of 2024. The corporation saw a staggering increase in operating profit to ₩6.6 trillion for the January-March period, marking an increase of 931% compared to the same timeframe in 2023, notably exceeded analysts' predictions, which had estimated profits around ₩5.7 trillion.

This remarkable financial performance comes in the wake of a revitalised semiconductor market, where global memory chip prices have seen approximately a 20% rise over the past year. This upturn is attributed to a burgeoning demand for AI technology and products, alongside a recovery from the post-pandemic downturn in chip prices. The recent earthquake in Taiwan on 3rd April, affecting a region critical to global chip production, could potentially tighten supply further, enabling Samsung to enhance its pricing strategies. Notably, Taiwan houses key players in the chipmaking industry, including TSMC, which, despite reporting minor operational disruptions, remains a major supplier to companies such as Apple and Nvidia.

Although not currently a force in AI chips, the South Korean company is the world's largest memory chip maker, and investor and analyst confidence in the company, especially due to the belief AI will drive demand for NAND, is bullish.

In 2023, Samsung faced its most challenging year in over a decade, marred by a downcycle in the semiconductor market following tit-a-tat trade restrictions traded by the West and CHina, and diminished demand for smartphones and TVs due to a global economic slowdown. In response, the company strategically reduced chip production and shifted its focus towards premium electronic products. The latter part of the year saw a recovery, with Samsung registering profits from DRAM for the first time in twelve months during the fourth quarter.

Analysts anticipate a profitable turnaround for Samsung's chip division in the first quarter of 2024, with DRAM and NAND prices expected to continue their upward trajectory. Kyung Kye-hyun, CEO of Samsung's chip division, projected the company's annual earnings to align with those of 2022. Additionally, the introduction of the Galaxy S24 series in the first quarter is believed to have significantly contributed to the profit surge. Samsung is set to publish a comprehensive earnings report on 30th April.

The electronics industry at large, especially companies specialising in AI chips, is experiencing a notable boom, underscored by Nvidia's recent milestone of achieving a market valuation of $2 trillion. This achievement highlights the escalating demand for AI technologies, a sector where Nvidia has transitioned to focus significantly. Initially celebrated for its graphics processing units, Nvidia has adeptly pivoted towards AI, securing a pivotal role across various sectors. The company's valuation leap not only exemplifies the growing market confidence in AI-centric business models but also signals a broader market rally, affirming the AI boom's impact.

Despite facing regulatory challenges, including restrictions on chip exports to China, the regulatory backdrop underscores the strategic importance of AI technology in global markets and national security considerations and thus the value nations are placing on the companies that produce them.

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