Samsung Electronics rebounded in earnings, regaining operating profit in the 12 trillion won range in the third quarter for the first time in more than three years this year. Thanks to a global boom in investment in artificial intelligence (AI), the company's core semiconductor business regained momentum. The foundry (semiconductor contract manufacturing) business, the "aching finger" that posted losses in the 2 trillion won range for three consecutive quarters, also more than halved its losses, aiding the rebound.
Samsung Electronics said on the 14th that its tentative results for the third quarter showed revenue of 86 trillion won and operating profit of 12.1 trillion won. Revenue rose 8.7% from the third quarter of last year to a record high, and operating profit increased 31.8%. It is an "earnings surprise" that exceeds by 20% the recently rising securities market consensus for operating profit (10.1 trillion won. Operating profit fell to the 4 trillion won range in the second quarter, heightening a sense of crisis, but the chain of sluggishness has been broken for now.
◇ Semiconductors and mobile drive results… appliances lag
Semiconductors are the star of this surprise performance. Samsung Electronics does not disclose divisional results in its preliminary report, but the securities market estimates that the DS (Device Solutions) institutional sector in charge of semiconductors recorded about 7 trillion won in operating profit in the third quarter. The spread of AI servers increased shipments of high value-added products such as HBM (high bandwidth memory) and DDR5, and as production capacity concentrated on advanced nodes, general-purpose DRAM and NAND flash faced shortages, pushing up prices. The NAND business, which had been in the red throughout the first half, swung to a profit in the third quarter, and DRAM operating profit roughly doubled from the previous quarter, according to the securities market.
In particular, the recovery trend of the HBM (high bandwidth memory) business, which had lagged behind competitors such as SK hynix, is clear. Orders have surged, centered on U.S. big tech corporations such as Broadcom, Amazon, and Google, which, alongside AMD, Nvidia's rival, make their own AI chips. In addition, Samsung effectively completed quality certification in the third quarter for the 12-high fifth-generation HBM (HBM3E) product for Nvidia, which had been a stumbling block, making supply visible. Chae Min-sook, a researcher at Korea Investment & Securities, analyzed, "Third-quarter HBM revenue increased 98% quarter over quarter, driving an average selling price (ASP) rise along with general-purpose DRAM."
The foundry and System LSI divisions also reduced operating losses from 2.5 trillion won in the second quarter to the 1 trillion won range in the third quarter. Researcher Chae said, "Foundry is gradually increasing its utilization rate by securing additional new customers in mature processes at 7-nanometer and above," adding, "One-off expense that occurred from the second half of last year has decreased, significantly narrowing losses." Recent wins, including chips for IBM's next-generation servers and for Nintendo's next-generation console, have diversified the customer base and contributed to better results.
The smartphone (MX) business is estimated to have maintained solid profit in the low-to-mid 3 trillion won range. Strong sales of foldable smartphones such as the Galaxy Z Fold7 and Flip7, released on Jul. in the 7th, drove results. The display (SDC) institutional sector was also expected by the securities market to have posted profit in the 1 trillion won range, helped by increased volumes of OLED (organic light-emitting diode) panels for the Galaxy Fold. By contrast, the TV and appliances business appears to have remained weak, with profit only in the 400 billion won range. IBK Securities observed, "Profitability in the TV business has declined, and the appliances business may even have posted an operating loss."
◇ Fourth quarter also "clear"… next year seen as best in eight years
The outlook is also bright. The securities market expects Samsung Electronics' operating profit to exceed 12 trillion won in the fourth quarter as well. Prices for memory semiconductors such as general-purpose DRAM and NAND flash are projected to rise more steeply than in the third quarter, and operating losses in the foundry institutional sector are expected to shrink further. Kim Dong-won, a researcher at KB Securities, said, "In the second half of this year, Samsung Electronics' HBM shipments will surge to more than double the first half," adding, "With general-purpose memory supply limited and server demand increasing, the rising price trend for DRAM and NAND will continue for the time being from the second half."
Next year, the company is projected to achieve its best results in eight years, since the "super boom" in semiconductors in 2018. Some securities firms, including Korea Investment & Securities, offered rosy projections that Samsung Electronics will surpass its operating profit at the time (58.8 trillion won) and post profit of 73 trillion won next year. Researcher Kim said, "Samsung Electronics is expected to supply a significant portion of HBM4 volume for AI accelerators that AMD will supply to OpenAI from the second half of next year," adding, "HBM revenue for AMD will increase by at least fivefold from this year, and Samsung is also expected to benefit from the diversification of HBM4 supply for Nvidia." The AI boom is explosively increasing HBM demand, which in turn is leading to shortages and price hikes in general-purpose memory semiconductors, positioning Samsung to ride a "memory supercycle (long boom)" at least through 2027.