Samsung Q2 Profit Soars on Rising AI Chip Demand

Samsung’s Q2 earnings surpass expectations, driven by strong AI memory chip demand and smartphone sales, signaling the company’s resilience amidst industry challenges.

Robust financial performance: Samsung Electronics reported impressive second-quarter results, exceeding analysts’ estimates for both revenue and operating profit:

• Revenue reached 74.07 trillion Korean won (approximately $53.45 billion), surpassing the average estimate of 73.74 trillion Korean won.
• Operating profit soared to 10.44 trillion Korean won, significantly higher than the average estimate of 9.53 trillion Korean won, representing a staggering 1,458.2% increase from the previous year.

Strong demand for AI memory chips: Samsung attributed its strong performance to robust demand for advanced memory chips crucial for artificial intelligence training:

• High-bandwidth memory (HBM) and conventional memory, such as regular dynamic random access memory (DRAM), saw increased demand from customers expanding their AI investments.
• The company expects the demand from server AI to remain strong across server products, including HBM, server DRAM, and solid-state drives (SSDs) in the second half of the year.
• Samsung plans to address the AI demand by expanding sales of its latest AI memory product, HBM3E, through capacity expansion in the second half, as well as increasing sales of SSDs, which are currently in high demand for AI servers.

Smartphone performance and future plans: While smartphone sales declined in the second quarter due to the base effect of new model launches in the first quarter, the Galaxy S24 series continued to see strong demand:

• Samsung aims to continue pushing its premium Galaxy AI products, with the recent global launch of its newest devices, including the Galaxy Z Fold6, Z Flip6, Watch Ultra, and Ring.
• Counterpoint Research predicts that Samsung should see a “greater uptick to its operational performance” in the second half, driven by memory chips and the “premiumisation” trend of smartphones.

Investor confidence and outlook: Samsung’s strong performance and optimistic outlook have boosted investor confidence, as reflected in the company’s share price:

• Samsung shares rose as much as 1.35% on Wednesday morning following the earnings announcement.
• The company announced a dividend payout of 361 won per common and preferred share for the second quarter, further reinforcing its commitment to shareholder value.

Navigating industry challenges: Samsung’s impressive results come amidst a challenging landscape in the technology industry, with ongoing supply chain disruptions and geopolitical tensions:

• The company acknowledged that expanding capacity to meet the demand for HBM and server DRAM could further constrain the supply of conventional memory chips, highlighting the delicate balance between meeting AI-driven demand and maintaining a stable supply for other applications.
• Despite these challenges, Samsung’s strong performance and strategic focus on AI and premium smartphone products demonstrate its resilience and adaptability in the face of industry headwinds.