Samsung Electronics' memory division posted an operating margin in the first quarter similar to SK hynix. Operating margin is a key indicator of a business's profitability. SK hynix, whose memory semiconductor production capacity (CAPA) is relatively smaller, focused on manufacturing high-bandwidth memory (HBM), which has higher profitability, in the first quarter. By contrast, Samsung Electronics also produced commodity DRAM, yet its memory business remained highly profitable, which analysts say drove overall growth in first-quarter results.
With the memory semiconductor super-boom, the overall scale and profitability of Samsung Electronics' DS (semiconductor) division appear to have surpassed TSMC, the world's largest foundry (contract chip manufacturing) company. It is the first time in 29 quarters since the fourth quarter of 2018 that Samsung Electronics' DS division has topped TSMC in sales, operating profit, and profitability. However, losses seem to have continued in non-memory (System LSI and foundry) in the first quarter, which remains a concern. The gap with TSMC is still large when looking at the foundry business alone.
◇ As commodity DRAM prices rise… Samsung Electronics maximizes memory profitability
Samsung Electronics said in a filing on the 30th that it posted sales of 133.87 trillion won and operating profit of 57.23 trillion won in the first quarter. Sales rose 69.2% and operating profit jumped 756.1% from a year earlier. Both sales and operating profit hit all-time quarterly highs.
Samsung Electronics' DS division recorded first-quarter sales of 81.7 trillion won and operating profit of 53.7 trillion won. That accounted for about 94% of total operating profit. Samsung Electronics' DS division is broadly divided into memory and non-memory. Sales from the memory business in the first quarter came to 74.8 trillion won.
Samsung Electronics does not disclose detailed operating profit by business unit within the DS division. Still, the brokerage industry sees a loss of about 1 trillion to 1.5 trillion won in the non-memory business in the first quarter. Considering this, the memory division effectively carried the record-high quarterly results.
Putting together brokerage analyses, Samsung Electronics' memory division operating margin in the first quarter is estimated at about 70% to 75%. That is a level similar to SK hynix's first-quarter operating margin. SK hynix posted first-quarter sales of 52.5763 trillion won and operating profit of 37.6103 trillion won, for an operating margin of 72%.
Samsung Electronics has greater memory semiconductor production capacity (CAPA) than SK hynix. In the first quarter, sales at Samsung Electronics' memory division were estimated to be about 22.2 trillion won higher than SK hynix. The industry cites the rise in "commodity DRAM" prices as the reason Samsung Electronics and SK hynix, which focused on producing highly profitable HBM in the first quarter, posted similar operating margins.
According to market researcher TrendForce, first-quarter contract prices for commodity DRAM are estimated to have risen 90% to 95% from the previous quarter. An increase of 55% to 60% had been expected, but demand for AI servers and data centers spilled over into a shortage of general DRAM supply, sharply lifting the price outlook.
Spot prices for DRAM are also climbing steeply. The average spot price for DDR4 1Gx8 3200MT/s, a benchmark for commodity fourth-generation double data rate (DDR4), rose about 33.8% from $25.407 in early January to $34.00 in mid-March. In late February PC DRAM contract samples, the average price of DDR4 16Gb 2Gx8 rose 13.46% from the prior period. This trend has emerged as major memory semiconductor corporations such as Samsung Electronics, SK hynix and Micron concentrate on producing artificial intelligence (AI) products.
◇ Beating TSMC on unprecedented memory super-boom… non-memory slump is a concern
Buoyed by the memory semiconductor super-boom, first-quarter results at Samsung Electronics' DS division appear to have left TSMC far behind. It is the first time since the fourth quarter of 2018 that the DS division's results have surpassed TSMC.
TSMC posted first-quarter sales of $35.9 billion (about 53.33 trillion won) and operating profit of $20.9 billion (about 31.047 trillion won), for an operating margin of 58.1%. Compared with Samsung Electronics' DS division, sales were about 28.4 trillion won lower and operating profit about 22.7 trillion won lower. The first-quarter operating margin of Samsung Electronics' DS division was 65.7%, 7.6 percentage points (P) higher.
As recently as the fourth quarter of last year, Samsung Electronics' DS division lagged TSMC in sales, operating profit, and profitability. The sales gap then was about 6 trillion won, and the operating margin gap was around 17 percentage points. That gap was reversed thanks to the memory semiconductor super-boom.
It has been 29 quarters since Samsung Electronics last outpaced TSMC not only in sales and operating profit but also in profitability. At that time, Samsung Electronics' sales were about 8.39 trillion won higher and operating profit about 3.9 trillion won higher. Then, too, the memory super-boom lifted the profitability of Samsung Electronics' semiconductor business. In the first quarter of this year, an unprecedented super cycle materialized, putting Samsung ahead of TSMC by an even wider margin.
Still, continued losses in Samsung Electronics' non-memory division are seen as a concern. Sales in the company's non-memory business division in the first quarter were tallied at 6.9 trillion won. That is about 12% of TSMC's sales during the period. According to market researcher Counterpoint Research, Samsung Electronics ranked second with a 7% share of the global foundry market in the fourth quarter of last year. However, the gap with TSMC, which took first place with a 72% share in the period, is large.
A semiconductor industry official said, "Memory, Samsung Electronics' core business, goes through repeated cycles of boom and bust, so depending on the cycle, situations arise where it surpasses TSMC," adding, "Foundry, where TSMC dominates the market, is order-based, so results tend to grow stepwise, which is advantageous for performance stability."