Samsung Electronics anticipates robust demand for artificial intelligence-driven chips in the latter half of this year, as it reported a more than 15-fold increase in second-quarter operating profit. Rebounding semiconductor prices, fueled by the AI boom, significantly boosted the June quarter earnings for the world's largest manufacturer of memory chips, smartphones, and TVs, from a low base a year ago.
"In the second half of 2024, AI servers are expected to take up a larger portion of the (memory) market as major cloud service providers and enterprises expand their AI investments," Samsung stated.
Samsung's share price saw a 0.7% rise in morning trading, compared to a 0.3% increase in the benchmark index. Operating profit surged to 10.4 trillion won ($7.52 billion) in April-June, up from 670 billion won a year earlier, marking the highest operating profit since the third quarter of 2022. This recovery was driven by the chip division, which returned to form as the tech giant's primary revenue source after a downturn caused by weak post-pandemic demand for gadgets.
Second-quarter revenue increased by 23% to 74 trillion won.
The chip division posted a 6.45 trillion won profit, its highest since the second quarter of 2022, and its second consecutive quarterly profit. The rising demand for high-end DRAM chips, including high bandwidth memory (HBM) chips used in AI chipsets, as well as chips for data center servers and AI service devices, has driven chip prices higher. Samsung reported that its second-quarter HBM revenue rose by approximately 50% from the previous quarter.
SouthKorean rival and HBM leader SK Hynix also noted a continuing strong demand for AI chips, posting its highest quarterly profit since 2018.
Although Samsung has not yet met AI chip leader Nvidia's standards for fifth-generation HBM chips, known as HBM3E, its fourth-generation HBM (HBM3) has been approved by Nvidia for use in its H20 graphics processor, developed for the Chinese market, according to sources.
Samsung forecasts that HBM3E chips will constitute 60% of its HBM sales by the fourth quarter. Analysts believe this target could be achievable if Samsung's HBM3E passes Nvidia's final approval by the third quarter. With production capacity focused on HBM, server DRAMs, and server solid-state drives (SSDs) for AI applications, Samsung predicts that the supply of conventional PC and mobile memory chips will be constrained in the second half of the year.
The mobile devices business experienced a drop in second-quarter operating profit of about 810 billion won from a year earlier due to higher parts costs, although shipments remained steady at 54 million smartphones. Samsung expects overall demand for smartphones in the second half of 2024 to increase compared to a year earlier, driven by growing demand for premium products with AI capabilities and accessories such as smartwatches.
Earlier this month, Samsung launched its latest AI-enabled flagship foldable phones and mobile accessories to compete with Apple in the premium smartphone segment, including a new ring for health monitoring.
