Unlock Editor’s Digest for free
Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
Samsung Electronics estimates its operating profit rose nine-fold in the third quarter as strong demand for memory chips from AI companies continues to cause industry-wide shortages.
The world’s largest memory chip maker forecast a record operating profit of 107.4 billion won ($80.2 billion) between July and September. This compares to 12.2 trillion won during the same period last year and is higher than expectations of 106 trillion won as compiled by LSEG SmartEstimate.
Sales were estimated at 195 trillion won, up 126.6 percent year-on-year.
Samsung releases earnings and sales forecasts before releasing full quarterly results.
The optimistic forecast represents a fourth straight quarter of record performance and highlights a prolonged shortage of memory chips as AI companies ramp up supplies and drive up prices.
Samsung said it became the world’s first technology company to report quarterly operating profit above 100 trillion won.
High demand for memory chips – a crucial part of the data centers that power AI – has led to record profits and stock prices for chipmakers such as Samsung. Its stock has more than doubled this year, valuing the company at about $1.3 billion.
The demand also put pressure on other buyers of memory chips, including smartphone and computer makers, who faced higher prices.
Contract prices for conventional dynamic random access memory chips, which store short-term memory on devices, are expected to rise 10 to 15 percent in the fourth quarter, according to market researcher TrendForce.
Analysts expect the chip shortage to persist into next year, with margins protected by a growing proportion of long-term supply contracts with AI companies. US chipmaker Micron said last week that the sector could see a tighter market over the next two years.
“We expect memory supply to be more constrained next year than this year,” said Kim Young-geon, an analyst at Mirae Asset Securities. “New long-term contracts are being signed at higher prices than existing contracts. »
Han Dong-hee, an analyst at SK Securities, said the increase in long-term agreements had reduced the boom-and-bust nature of the sector as well as price volatility.
“Even though peak earnings may be somewhat lower, the period during which earnings remain at a high level will be much longer, thereby maximizing cumulative cash generation,” he said in a recent report.
In the area of more advanced AI hardware, Samsung has recently gained ground in the development of advanced HBM4 chips after years of struggling to narrow its gap with rival SK Hynix.
However, some investors are questioning long-term demand for chips due to concerns about the existential risks of AI. Some US technology companies have called for a slowdown in the pace of AI development.
In a sign of investor concerns, Samsung shares fell 1.8 percent on Thursday despite a record profit. They are down more than 25 percent from their June peak.
“Investors are looking beyond the company’s quarterly numbers and waiting for clearer signals that the upcycle can continue next year and the year after that,” said Albert Yong, managing partner of Seoul-based Petra Capital Management.
“They are more concerned about when the industry will peak and whether it will repeat the severe boom-bust cycle of the past. »
Compared to its American peers, Samsung is undervalued. Its price/earnings ratio stands at 11.8 compared to 39.5 for the Philadelphia Semiconductor Index, which tracks the largest US chipmakers.
Analysts expect Samsung’s full results to reveal the negative impact of the sharp appreciation of the won, with the South Korean company generating the bulk of its revenue outside its home country.
The currency gained more than 14 percent against the dollar in the third quarter, its biggest quarterly gain since early 1998.
Rising chip costs have also hit Samsung’s consumer electronics business, which has struggled to pass on the increase to its customers.
Analysts estimate that its smartphone and home appliance businesses suffered more than 1 billion won in combined operating losses in the third quarter.
Gn bussni
