Samsung’s Profit Soars Due to AI Demand and Tight Chip Supply

Published April 30, 2024

In an inspiring turn of events in the technology sector, Samsung Electronics has projected sustained demand for artificial intelligence, while also predicting a supply strain for some advanced chips. This forecast places the company among its industry rivals who are reaping the benefits from a robust recovery in the once-struggling global memory chip market.

Bullish Market Reaction

Following the release of their optimistic forecast, Samsung saw a 1.8% increase in share price after announcing a staggering increase in first-quarter operating profit, which rose more than tenfold. Despite the jump, Samsung's year-to-date shares have seen a minor drop of 0.8%, a contrast to SK Hynix's impressive 24% rise. Nonetheless, Samsung is pushing forward in the high-end chip market, aiming to ramp up its supply of high bandwidth memory (HBM), used in leading AI technology by Nvidia.

Upcoming Production Innovations

Samsung is looking to triple its HBM-related chip supply by 2024 compared to the previous year. It has already commenced mass production of the innovative 8-layer HBM3E chips, targeting the explosive AI chipset industry. Samsung's strategic moves are in direct response to capitalize on the AI surge that has seen benefits for companies like SK Hynix, Nvidia's previous lone supplier for HBM3 chips.

The tech giant is further showcasing its ambition by moving forward with the production of a 12-layer version of the chip in the second quarter, with plans for the HBM3E chips to constitute two-thirds of their HBM output by the end of the year. While analysts find Samsung's targets ambitious, the company's advancements indicate a competitive edge, particularly in high-stacking chip technology.

Increased AI Server Offerings

In addition to the HBM developments, Samsung has committed to enhancing its offerings of high-end solid-state drive (SSD) products. This is in response to the growing demand from AI servers and an expectation for a tighter supply of high-end memory chips as the year comes to a close.

Financial Growth in AI's Wake

Reports from Seoul reveal Samsung's first-quarter revenue rose 13% to a remarkable 71.9 trillion won ($52.14 billion), owing a significant portion to a 96% increase in memory chip revenue driven by escalating demand from AI applications. The company's operating profit followed suit, surging to 6.6 trillion won from just 640 billion won the previous year, marking its highest profit since the third quarter of 2022.

Sturdy Performance Amidst Smartphone Competition

The company has also witnessed success in its mobile devices division with substantial profits, although displaying a slight dip from the previous year. Samsung has managed to reclaim its position as the world's top smartphone manufacturer, edging out Apple, which has observed sales reductions in China. Moreover, rising costs, including the higher prices of memory chips, have affected profits from the Galaxy S24 smartphones launched in the quarter.

Nevertheless, Samsung credits AI features for driving S24 phone sales, with significant numbers of consumers purchasing them for AI capabilities and frequently utilizing these functions. This demand has allowed the mobile division to maintain robust profitability into the first quarter.

Samsung, AI, Chips