Samsung Electronics predicted on Friday that its operational profit for the first quarter would increase more than tenfold, above market estimates, as chip prices have begun to recover after a sharp decline due to a growth in artificial intelligence.

However, the lack of optimism shown by investors was evident when they drove Samsung shares down 1.3% early on Friday, matching a 1.1% decline in the larger South Korean market (.KS11), opens new tab, as they awaited information on the company’s high-end memory chip division, which has been trailing competitors.

The largest memory chip and TV manufacturer in the world reported that its operational profit for the quarter ended March 31 was 6.6 trillion won ($4.89 billion), exceeding the 5.7 trillion won LSEG SmartEstimate.

That would be Samsung’s largest operating profit since the third quarter of 2022, up 931% from 640 billion won a year earlier.

However, revenue fell short of projections, presumably increasing by 11% from the same period last year to 71 trillion won, as opposed to the 72.3 trillion won predicted by the LSEG SmartEstimate.

“Since revenue was mostly in line but operating profit beat expectations, the inventory valuation of NAND flash chips may have improved. Demand for NAND has improved, which may have improved margins as well,” said Park Sung-soon, an analyst at Korea Investor Relations Service.

“Initial response to new Galaxy S24 smartphones was also positive due to on-device AI, so if greater-than-expected portion of the high-margin premium smartphones were sold, it would have an impact.”

On April 30, the business is expected to disclose comprehensive earnings.

The improved performance coincides with the company’s semiconductor division, which has historically generated the most revenue, set to achieve its first quarterly profit in five quarters as memory chip prices recover from a steep decline that started in mid-2022 as a result of the sluggish post-pandemic demand for gadgets.

According to data source TrendForce, prices for DRAM chips jumped by roughly 20% in the first quarter compared to the previous quarter, while prices for NAND flash chips increased by 23% to 28%.

A 34% increase in Samsung shares over the past 12 months has been driven by the bullish view for memory chip demand, which includes an explosive hunger for chips like high-bandwidth memory (HBM), which is utilised in AI chipsets. This has outpaced a 10% growth in the broader market.  

However, although entering the burgeoning HBM market somewhat late, it has underperformed compared to its cross-town rival SK Hynix (000660.KS), opens new tab, whose shares climbed 122% during the same period.

Given that Samsung intends to start shipping its newest and most potent HBM chips in the third quarter, analysts anticipate that the company will eventually catch up.

The 7.2-magnitude earthquake that struck Taiwan on Wednesday is probably going to make it harder to get semiconductors, and according to analysts, Samsung and SK Hynix might raise memory chip prices more sharply than they had anticipated, which might increase their profitability for the second quarter.

According to analysts, Samsung’s mobile division most certainly made a healthy profit after starting to sell its new flagship Galaxy S24 devices in late January.

Samsung sold 57 million smartphones during the quarter, according to Eugene Investment & Securities, up 8% from the previous quarter. Additionally, profits were likely supported by the devices’ average selling price, which increased by 30% to $340 from the previous quarter.

In the first three weeks of their release, sales of Galaxy S24 smartphones worldwide increased by 8% over those of the Galaxy S23 series from the previous year, according to data source Counterpoint.

(Adapted from Business_Standard.com)