Key Points:
- Samsung anticipates a massive $26.9 billion in operating profit for the first quarter, driven by an artificial-intelligence memory-chip supercycle.
- The ongoing war in the Middle East and Google’s new TurboQuant technology recently caused the company’s stock to drop by 14.0%.
- Despite short-term price cooling, researchers expect DRAM contract prices to surge up to 63.0% in the second quarter.
- The smartphone and screen divisions expect their profits to drop by half, while local labor unions threaten to strike in May.
Samsung Electronics expects to report a massive jump in its early-year profits. Thanks to red-hot chip prices fueled by the artificial intelligence boom, the company anticipates a six-fold increase in operating profit for the January through March quarter. Financial experts project that the technology giant will announce a staggering profit of 40.5 trillion won, equivalent to about $26.9 billion, this coming Tuesday.
This single quarter nearly matches the total the company earned in the entire previous business year. Last year, the world’s largest memory chip maker recorded 43.6 trillion won in total operating income. Now, overall revenue climbs by an impressive 50.0%. Some financial analysts feel even more optimistic about the numbers. Experts at Citi forecast the quarterly profit could reach 51.0 trillion won. Analysts call this period an unprecedented supercycle for the memory chip market.
Investors remain cautious despite the massive cash influx. They closely watch how the ongoing war in the Middle East might slow Samsung’s growth momentum. The conflict, which began on February 28, rapidly increased global energy costs. It also threatens to disrupt the supply chains for key production materials. These rising expenses might force major technology companies to cut back on their massive investments in artificial intelligence data centers.
Other market factors also present new challenges. Spot prices for dynamic random access memory chips recently started to ease. Device manufacturers raised the retail prices of smartphones and computers, which naturally hurt consumer demand. At the same time, Google unveiled a new memory-saving technology called TurboQuant last month. These combined concerns triggered a selloff in memory chip stocks. Samsung shares have lost 14.0% of their value since the war started. Still, the stock remains up 50.0% for the year thanks to hundreds of billions of dollars in early artificial intelligence investments.
Despite the recent dip in spot prices, industry insiders stay positive. A severe shortage of memory chips continues to plague the global market. Tobey Gonnerman, the president of semiconductor distributor Fusion Worldwide, noted that the recent price cooling over the last few weeks looks completely temporary. He stated that customer demand remains incredibly strong, and manufacturers will need a long time to catch up with the massive backlog of orders.
Market research firm Trendforce backs up this confident outlook. The firm expects conventional contract prices for memory chips to keep surging. These prices have already doubled during the first quarter. Now, researchers forecast that they will climb another 58.0% to 63.0% between April and June. To protect against future market swings, Samsung co-CEO Jun Young-hyun told shareholders the company now works with major clients to sign long-term contracts lasting 3 to 5 years.
While the memory chip division brings in massive piles of cash, other parts of the Samsung empire struggle to stay afloat. Analysts expect the contract chip manufacturing business to lose money this quarter. This specific division competes directly with rival TSMC. However, the manufacturing team recently secured a helpful partnership with Nvidia to build new artificial intelligence processors, which could improve future earnings.
The consumer electronics side of the business faces a tough road ahead. The smartphone and flat-screen divisions will likely see their profits slump by about 50.0% in the first quarter. Kiwoom Securities blames this drop on fierce market competition and rising costs of memory components. Building a phone simply costs more money today than it did a year ago.
Samsung executives also must deal with growing unrest inside their own factories. The company faces rising wage costs as local labor unions in South Korea demand better pay. The workers called for a complete revamp of the corporate bonus scheme. If the company refuses to meet its demands, the union leaders threaten to launch a massive strike by workers in May. Samsung must navigate these labor disputes carefully to keep its highly profitable chip factories running at full speed.
