Samsung’s profits indicate a 2024 turnaround in the chip industry

Despite a rise in chip prices, Samsung Electronics’ operating profit decreased by more than a third in the fourth quarter. However, analysts predict that this year will see a faster recovery in the semiconductor industry due to rising demand for high-performance processors.

The biggest memory chip manufacturer in the world said on Tuesday that early results for the October–December quarter showed an operational profit decline of 35% to Won2.8tn ($2.1bn). LSEG SmartEstimates said that was worse than analysts’ projections for Won3.7tn. Sales decreased 4.9% to Won67tn from the previous year.

Still, this was Samsung’s lowest earnings decline in five quarters compared to the previous year. Due to a supply glut brought on by high inflation-related consumer demand for smart devices, the industry saw its worst fall in decades last year. In the second quarter of 2022, Samsung last reported a profit rise over the previous year.

Following the statement, the South Korean company’s shares saw a 0.6% decline in trading on Tuesday in Seoul. At the end of the month, comprehensive fourth-quarter and full-year results will be released.

With the aid of production reductions by memory-chip manufacturers, chip prices started to rise in the fourth quarter. According to analysts, operational losses at Samsung’s chip division, which is typically its largest revenue generator, decreased to Won1.2 trillion in the December quarter from Won4.4 trillion and Won3.8 trillion in the corresponding second and third quarters. Nonetheless, they stated that the company’s profitability were negatively impacted by the television and other home appliance businesses’ worse-than-expected performance.

“The industry cycle is stabilising faster than expected thanks to supply adjustments,” said Roko Kim, an analyst at Hana Financial Investment. “Dram chipmakers’ inventories are likely to fall short of appropriate levels by the end of the first quarter. Then, they will need to think about increasing output and plant operating ratios.”

Since April, Samsung has decreased its output in order to compete with rivals like Micron Technology and SK Hynix. There have been indications of a resurgence in the $160 billion memory chip business, and Micron’s quarterly revenue forecast last month exceeded market estimates.

Analysts noted that while Samsung’s Nand flash memory operations are still losing money, the company’s Dram chip division has already started to earn a profit. According to data provider TrendForce, costs for mobile Dram chips increased by 18–23% during the fourth quarter. while the cost of mobile Nand flash chips increased by 10% to 15%.

Nand flash memory chips are used to store data, while Dram chips are found in servers, PCs, and cellphones.

According to HSBC, Samsung will have a “huge earnings recovery” this year due to a “demand-driven upcycle.” It mentioned rising costs for AI servers, an increase in the market for high-bandwidth memory (HBM) processors, and an increase in Dram and Nand due to the advent of on-device AI, which is integrated into smartphones and other goods. It predicted that revenues would rise 18% to Won308 trillion and that Samsung’s operating profit would more than quintuple to Won43 trillion.

While Samsung has lagged behind domestic rival SK Hynix in terms of mass-producing the most sophisticated HBM chips, HSBC anticipates that it will break through as a major supplier by the middle of this year.

The past year has seen a 25% increase in Samsung shares due to expectations of a swift industry revival. Although shipments of its most recent foldable phones, which were released in August, have slowed down, Samsung intends to launch a new flagship smartphone later this month with on-device AI features to become one of the first smartphone manufacturers in the world to incorporate generative AI into its devices. As a result, earnings from its mobile division have slightly declined.