AI drives chip demand, Samsung's second-quarter operating profit surges 1458%

Driven by strong demand for AI storage chips, Samsung Electronics announced on Wednesday that its second-quarter revenue and profit were both higher than expected. This is the first time since the third quarter of 2022 that Samsung Electronics' quarterly operating profit has exceeded 100 trillion Korean won. Boosted by the better-than-expected financial report, Samsung's stock price also rose by 1%.

On Wednesday morning, Samsung Electronics released its financial report for the second quarter of this year, with profits soaring in the chip business:

1) Key Financial Data

Revenue of 74.07 trillion Korean won (approximately $534.5 billion), a year-on-year increase of 23.42%, exceeding the expected 73.74 trillion Korean won.

Operating profit of 10.44 trillion Korean won (approximately $75.4 billion), a staggering 1458.2% year-on-year increase, surpassing the expected 9.53 trillion Korean won.

Net profit of 9.84 trillion Korean won, a 471% year-on-year increase.

2) Performance Analysis and Outlook

Customers with strong demand for AI investments have shown robust demand for HBM, as well as traditional memories such as DRAM and SSD, contributing to the company's revenue growth.

Due to continued investment in artificial intelligence, it is expected that the demand for HBM, DDR5, and SSD memory products will remain strong in the second half of 2024, with increasing market share for HBM, DDR5, solid-state drives, and other products.

To meet the demand for HBM and server DRAM, capacity expansion will be carried out in the second half of the year, which may further constrain the supply of traditional memory chips.

In a seasonally weak quarter, smartphone demand continued to decline, especially in the high-end smartphone market. It is expected that the high-end smartphone market will grow in the second half of the year, but the mid-to-low-end market may slow down.

The company plans to continue promoting its high-end Galaxy AI products. Galaxy series devices including Galaxy Z Fold6, Z Flip6, Watch Ultra, and Ring will be launched globally.

Samsung Continues to Focus on HBM, But Still Lags Behind SK Hynix

Despite being the largest memory chip manufacturer in the industry, Samsung has been slow to start in the HBM market due to management misjudgments, allowing SK Hynix to significantly surpass them.

According to market research firm TrendForce, SK Hynix led the HBM market last year with a 53% market share, followed by Samsung Electronics (38%) and Micron (9%).

To turn the tide, Samsung replaced the head of its semiconductor division in May this year and established a new HBM development team to accelerate the research and development of next-generation HBM technology, engaging in a battle for HBM dominance with SK Hynix, with progress already made.

Last week, media reports indicated that Samsung Electronics' fourth-generation high-bandwidth memory chip HBM3 has been approved for use in NVIDIA chips, and the next-generation product HBM3E is expected to be certified within two to four months Samsung's efforts in the HBM market are likely to allow it to benefit from the surge in demand for AI products.

Counterpoint Research predicts that driven by the trend of high-end memory chips and smartphones, Samsung's performance in the second half of the year will see greater improvement.

Morgan Stanley forecasts that the global HBM market will increase from $4 billion last year to $71 billion by 2027. The faster Samsung gains favor from the AI GPU leader NVIDIA, the more revenue it can generate from the growth of the HBM market.

Morgan Stanley analyst Shawn Kim stated in a report this month:

It is expected that by 2025, Samsung's share in the HBM market will increase to at least 10%, which could add approximately $4 billion in revenue.

However, Kim also added that Samsung is currently lagging behind SK Hynix, but the rapid development in the HBM market may change investors' perceptions and boost its stock price.

Neil Shah, Vice President of Research at Counterpoint Research, said: "SK Hynix and Micron will continue to challenge Samsung in the memory sector, whether in the rapidly growing HBM field or in the AI smartphones and personal computer markets."