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Samsung's Robust Sales and Profit Growth Driven by AI Development and Memory Chip Demand
Samsung Electronics Co. has experienced its fastest sales and profit growth in years, underscoring a rebound in the memory chip market amid rising global AI development. The tech giant reported a significant 15-fold increase in operating profit, reaching 10.4 trillion won ($7.5 billion) for the June quarter, surpassing analysts' expectations. Meanwhile, sales surged by approximately 23%, marking the largest rise since the peak of the Covid-19 era in 2021. This robust performance propelled the company's stock to its highest point since January 2021, with an increase of up to 2.3%.
The results highlight a strong recovery in the $160 billion memory market from a severe post-pandemic downturn. The surge has been driven by the boom in data centers and AI advancements, which elevated average memory chip prices by 15% from the previous quarter, as estimated by CLSA. This price increase helped Samsung's largest division recover from last year's losses.
Boost in Chipmaking and Semiconductor Exports
Both DRAM and NAND prices benefitted from growing demand for AI servers and enterprise data storage solutions, aiding in reversing inventory valuation losses. Additionally, Samsung's foundry or contract chipmaking operations saw a lift due to better IT demand.
Reflecting broader industry trends, South Korea announced record-breaking semiconductor exports in June, contributing to an $8 billion trade surplus, the highest since 2020. Samsung is due to release detailed earnings with divisional breakdowns on July 31.
Challenges in AI Chip Market
Despite the overall positive trend, there are lingering investor concerns regarding Samsung's competitive position in the AI chip market, particularly against smaller rival SK Hynix Inc. While the latter has become a key supplier of high-bandwidth memory (HBM) chips, pivotal for AI hardware, Samsung has faced challenges getting its latest HBM chips certified by Nvidia Corp., now the most valuable chipmaker globally due to high AI accelerator demand.
Upcoming Union Action
Adding to the challenges, Samsung is set to release its results amid planned industrial action by union organizers, who have announced a three-day walkout involving over 28,000 members, including those at critical chip plants, over a pay dispute. This follows a smaller strike in the previous month, which was the first in the company's 55-year history. It remains uncertain how many employees will participate in the upcoming strike.
Strategic Focus on AI Memory
Looking ahead, Samsung aims to strengthen its position in the AI memory sector, while addressing concerns about potential oversupply. Investors are closely monitoring Samsung's response to SK Hynix, which recently saw its fastest revenue growth since at least 2010, fueling a roughly 60% rally in its stock since early 2024. In contrast, Samsung's shares have risen about 8% in the same period.
To steer its most crucial business line, Samsung appointed Jun Young Hyun, a veteran in the memory chip industry, as the new leader of its memory business. In previous quarters, strong smartphone sales helped Samsung counteract weak chip demand. The company is set to hold a Galaxy Unpacked event in Paris next week to sustain the momentum for its phones.
