As forecasts for second-quarter operating profit at Samsung Electronics and SK hynix have surged to nearly double in the past three months, attention is on whether they will post operating profit above consensus (the market average forecast) in the second quarter as well, following the first. Analysts said changed transaction methods between memory semiconductor corporations and their biggest customers, big tech companies, are making operating profit forecasts harder. With an acute memory shortage, big tech is moving to secure memory through methods different from before—at higher price ranges with premiums, advance payments, and long-term supply agreements (LTAs).
On the 22nd, industry sources said the biggest reason operating profit forecasts for Samsung Electronics and SK hynix are being revised up monthly is that memory semiconductor price indicators are failing to reflect actual market transaction prices. Major market research firms expect second-quarter contract prices for commodity DRAM to jump 58%–63% from the prior quarter and NAND flash to rise 70%–75%, but actual transaction prices are said to be set even higher.
◇ Samsung Electronics and SK hynix keep raising second-quarter earnings forecasts
According to financial data provider FnGuide, Samsung Electronics' second-quarter operating profit consensus for this year has soared to 87.15 trillion won from 47.85 trillion won estimated three months ago. The third-quarter operating profit consensus was also raised to 104.31 trillion won from 55.52 trillion won. SK hynix is no different. Its third-quarter operating profit consensus climbed to 75.89 trillion won from 45.16 trillion won three months earlier.
The same pattern played out in the first quarter. Throughout the first quarter, the securities industry kept raising estimates for Samsung Electronics and SK hynix, but the actual results topped consensus once the lid came off. SK hynix posted first-quarter revenue of 52.5763 trillion won and operating profit of 37.6103 trillion won, beating market consensus (revenue of 51.9346 trillion won and operating profit of 36.3955 trillion won) on both counts. Samsung Electronics also logged first-quarter operating profit of 57.2 trillion won, its biggest quarterly result ever, marking a 756% increase from a year earlier.
A similar trend is expected in the second quarter. Park Yuak, an analyst at Kiwoom Securities, projected Samsung Electronics' second-quarter operating profit at 100 trillion won, well above the market consensus of 84 trillion won. The forecast is based on analysis that contract prices for commodity DRAM and NAND flash will rise 55% and 72%, respectively, from the prior quarter, far exceeding market expectations.
◇ In a supplier's market, buyers pay premiums and advance payments
Another factor lowering predictability is that indicators from investment banks and market research firms for average transaction prices of memory semiconductors keep changing. Recently, UBS belatedly raised its forecast for server DDR5 DRAM price growth to 60% from 37%.
An industry official said, "Because the memory transaction structure gives suppliers additional profit not only through market prices but also through advance payments and premiums, it has become difficult to understand the revenue structure of Samsung Electronics and SK hynix based solely on transaction prices," and added, "Big tech such as Amazon, Microsoft (MS), Google, and Meta are accepting higher costs and even offering advance payments to secure volumes, making it common for buyers to accept price decisions."
Long-term supply agreements under way or already signed between big tech, including Nvidia, Google, Amazon, and MS, and Samsung Electronics and SK hynix are another variable. These are supply contracts signed privately, separate from market prices. Nomura Securities said, "Memory companies are discussing favorable LTAs with major clients in terms of volume, price, and advance payments," and added, "If these deals are concluded and take root as a new business model for the memory industry, high profitability for memory companies will continue over the medium to long term."