Samsung Electronics Co. Galaxy S24 smartphones during a preview event in Seoul, South Korea, Monday, Jan. 15, 2024. Samsung, the world’s most prolific smartphone maker, is leaning on artificial intelligence as a key to unlocking bigger sales this year . Photographer: SeongJoon Cho/Bloomberg via Getty Images

SeongJoon Cho | Bloomberg | Getty Images

On Tuesday, Samsung Electronics reported first-quarter operating profit jumped 932.8% as memory chip prices rose amid optimism about AI.

Here are Samsung’s Q1 results against LSEG estimates:

  • Income: 71.92 trillion Korean won (about $52.3 billion), versus 71.04 trillion Korean won
  • Operating profit: 6.61 trillion Korean won, versus 5.94 trillion Korean won

Samsung’s revenue for the quarter to March jumped 12.81% from a year earlier, while operating profit jumped 932.8% over the same period.

The numbers were in line with the company’s guidance earlier this month, where Samsung said operating profit for the January-March quarter likely rose to 6.6 trillion Korean won, up 931 percent from a year ago. The firm expects first-quarter revenue of 71 trillion won.

The South Korean electronics giant posted record losses in 2023 as the industry reeled from a post-Covid demand slump.

“The company reported KRW 71.92 trillion in consolidated revenue on the back of strong sales of the flagship Galaxy S24 smartphone and higher semiconductor memory prices. Operating profit increased to KRW 6.61 trillion as the memory business returned to profitability by responding to demand for high-value-added products,” Samsung Electronics said in a statement in Tuesday.

Citi analysts said they see upside for Samsung’s NAND flash memory business as a result of demand for AI computing. In a note dated April 5, they reiterated their “buy” rating on the firm with a price target of 120,000 won — a 56% upside from Monday’s closing price of 76,700 won.

NAND is another major memory chip along with DRAM.

“We expect storage (HDD) to be the next bottleneck in AI computing, especially in AI training, and we foresee Samsung Electronics being one of the key beneficiaries of SSD demand momentum for AI training,” Citi analysts said .

Samsung is the world’s largest manufacturer of dynamic random access memory (DRAM) chips, which are commonly found in a wide range of consumer devices, including smartphones and computers.

Samsung said it expects the second quarter to be driven mostly by demand for generative AI, while mobile demand remains stable. Meanwhile, it expects demand for PCs to be affected by sluggish seasonality, which could lead to an adjustment in customer inventories ahead of new product launches in the second half of 2024.

Memory business returns to profit

Samsung said its semiconductor business posted an operating profit of 1.91 trillion Korean won in the first quarter, compared with a loss of 4.58 trillion won in the same period a year ago and a loss of 2.18 trillion Korean won in the fourth quarter .

“We believe the earnings surprise was driven by higher memory price increases in a strong AI-driven bull run. We expect the company to target positive prospects in the memory market and highlight its readiness in the AI ​​era, including HBM (12H HBM3E, HBM4) and foundry/packaging solution,” SK Kim of Daiwa Capital Markets said in emailed comments to CNBC on Monday, before the earnings announcement.

As AI models become more complex and data sets grow larger, these models need memory chips with larger capacities and higher speeds to handle these workloads.

Kim said in an April 5 report that he expected a new increase in memory chip prices to boost Samsung’s second-quarter earnings amid the AI ​​boom and the Taiwan earthquake.

“Specifically, we expect more price growth as a result of the Taiwan earthquake,” Kim said, adding that the earthquake in early April temporarily affected TSMC‘sand Micronproduction of.

To meet AI demand, Samsung said it began mass production of HBM3E 8H and V9 NAND in April. Plans mass production of HBM3E 12H and 128GB product based on 1b nanometer 32GB DDR5 in the second quarter.

Despite macroeconomic uncertainty and geopolitical tensions, the firm expects the operating environment to “remain positive with demand” – supported by generative AI – in the second half of the year.

Samsung also said development of 3-nanometer and 2-nanometer processes is “progressing smoothly.” Samsung began mass production of 3-nanometer chips in 2022 and plans to begin mass production of 2-nanometer chips in 2025.

Galaxy S24 boost

Strong sales of Samsung’s latest Galaxy S24 smartphone series helped boost revenue and operating profit for the mobile business, the firm said. S24’s AI features such as Circle to Search were popular with customers.

However, the firm cautioned that smartphone demand and supply may decline in the second quarter due to seasonality.

But the smartphone market could see a recovery in the second half of the year from “stabilization of consumer sentiment, expansion of AI products and services, and economic growth in emerging markets.”

Samsung said it will continue to extend Galaxy AI to existing and new flagship products to drive further growth.

Growing competition

There are growing concerns that Samsung Electronics risks losing its leading position to rivals such as SK Hynix, the world’s No. 1. 2 memory chip manufacturer.

SK Hynix on March 19 said it had become the first in the industry to mass produce HBM3E, the next generation of high-bandwidth memory chips used in AI chipsets. SK Hynix is ​​the main supplier of HBM3 chips for Nvidia’s AI chipsets.

Mehdi Hosseini, senior technology hardware analyst at Susquehanna International Group, pointed out in early April that Samsung was the market leader in memory, smartphone and display innovation.

Now, Samsung is just “taking advantage of the recovery in the cycle,” he added.

In the first quarter, Samsung managed to regain the top spot in smartphone shipments after losing the crown to An apple in 2023, according to International Data Corp.