Samsung’s profit leaps fifteenfold as AI propels recovery in chips

SEOUL – Samsung Electronics posted its fastest pace of profit growth in years, reflecting a recovery in memory chip demand as artificial intelligence (AI) development accelerates globally.

The world’s largest maker of memory chips and smartphones said operating profit grew more than fifteenfold to 10.4 trillion won (S$10.2 billion) in its preliminary results for the June quarter, outstripping market projections.

Sales grew around 23 per cent, the biggest rise since Covid-19-era highs clocked in 2021. Samsung is slated to announce final earnings with divisional breakdowns on July 31.

The results underscore how the US$160 billion (S$216 billion) memory chip market is bouncing back in 2024 from a severe post-Covid-19 downturn, driven by a boom in data centres and AI development.

That demand pushed average memory chip prices 15 per cent higher from the previous quarter, CLSA estimated, helping Samsung’s largest division reverse year-earlier losses.

Both Dram and Nand prices were lifted by demand for AI servers and enterprise data storage, helping to reverse inventory valuation losses, said Mr Sanjeev Rana, an analyst at CLSA Securities Korea.

Samsung’s foundry, or contract chipmaking, operations also got a boost from improved information technology demand, he said.

South Korea’s government said this week that the country exported the most semiconductors on record in June, driving its trade surplus to US$8 billion – the largest since 2020.

While Samsung is benefiting from a broader industry recovery, investors remain concerned about its market position in the newer field of AI chips against SK Hynix.

Its shares have lagged its smaller rival, now the leading supplier of high-bandwidth memory, or HBMs, a vital component of AI hardware. It has struggled to get its latest HBM chips certified by Nvidia, which has become the world’s most valuable chipmaker thanks to insatiable demand for AI accelerators.

Samsung is unveiling results days before union organisers plan to stage a three-day walkout among its 28,000-plus members – including at key chip plants – over a pay dispute.

The proposed action follows a strike involving a small number of staff in June that was the first in the company’s 55 years. It is unclear for now how many employees intend to participate in the July 8 walkout.

Longer term, Samsung’s focus remains on turning around the memory chip division.

Investors have become increasingly concerned about Samsung’s response to SK Hynix, which recently reported its fastest pace of revenue growth since at least 2010. That has propelled a roughly 60 per cent rally in SK Hynix shares since the start of 2024, compared with a gain of about 8 per cent for Samsung’s stock.

Samsung in May unexpectedly named Mr Jun Young-hyun – a memory chip veteran who is returning to the company after leading Samsung SDI – as the new leader of its most important business line, replacing Mr Kyung Kye-hyun. BLOOMBERG