Fresh catalyst: People walk past a Samsung booth at a trade show in Las Vegas. Beyond AI, demand for server-related products also contribute to the company’s results. — Reuters
Seoul: Samsung Electronics Co has reported its fastest pace of net income growth since 2010 after the artificial intelligence (AI) boom lifted earnings at its semiconductor division.
The world’s largest maker of memory and smartphones posted a six-fold surge in net income to 9.64 trillion won or about US$6.96bil in the June quarter, versus the average analysts’ projection for 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.
The performance suggests the global computing markets are emerging from a protracted post-Covid downturn, thanks in part to a wave of spending on AI development from the United States to China.
Like SK Hynix Inc, Samsung supplies the semiconductors used for storage in servers and mobile devices and also sells a plethora of consumer electronics.
“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.
Samsung’s pivotal semiconductor unit posted a better-than-expected 6.45 trillion won operating profit, its second consecutive quarter in the black after four successive losses.
It was boosted by rising memory prices and robust demand for high-bandwidth memory chips (HBMs), which help conserve power while supporting faster processing speeds required by AI.
Investors have been concerned about Samsung’s market position in the fast-growing HBM market. Shares of South Korea’s largest company have underperformed its smaller rival SK Hynix, now the leading supplier of HBMs.
It struggled to get its latest chips certified by Nvidia Corp, which has become the world’s most valuable chipmaker thanks to insatiable demand for AI accelerators.
But Samsung is finally beginning to make progress in narrowing the gap with SK Hynix. 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.
The company said it plans to “actively respond” to demand for high-value-added products for AI and will expand capacity to increase the portion of HBM3E sales in the second half of this year.
Both DRAM and NAND prices increased during the quarter, helping operating income grow at Samsung’s foundry, or contract chipmaking, business.
That unit 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 has been one of the main beneficiaries of a race to supply components essential to creating ChatGPT-like generative AI services.
Revenue from HBM, which are paired with Nvidia’s accelerators, surged more than 250% in the June quarter. That propelled a more than 150% rally in SK Hynix shares since the start of 2023, more than triple Samsung’s performance.
Samsung is prioritising 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.
South Korea’s semiconductor exports jumped 57.5% in the first 20 days of July, early trade data from the Customs office showed.
Asia’s fourth-largest economy is one of the world’s largest exporters of computer chips and serves as a useful indicator of global technology demand. Chip shipments have picked up in recent months.
Analyst Masahiro Wakasugi said Samsung’s operating profit margin for semiconductors could further improve due to favourable pricing, after hitting a strong 23% in the second quarter (2Q).
“Yet rival SK Hynix might continue to lead on that metric due to its strength in HBMs for AI.
“SK Hynix’s operating margin was 33% in 2Q.” — Bloomberg
