Samsung Electronics Co.'s quarterly profit surged 19-fold, but failed to impress investors accustomed to eye-catching growth from the suppliers of chips to the global AI boom.
Samsung's shares slid as much as 6.8% in Seoul, with investors having largely priced in hefty profit margins at chipmakers, lifted by a historic buildout of AI infrastructure worldwide. Korea's largest company posted preliminary operating income of 89.4 trillion won ($58 billion) in the three months through June, beating projections by about 6%. Revenue more than doubled to 171 trillion won.
Earnings by the world's largest memory maker are in the spotlight as investors seek to justify sky-high investments and valuations around AI. Global semiconductor shares jumped to record levels earlier this year, but have hit turbulence on fears about increased competition, possible overcapacity and whether plans for hundreds of billions of dollars in investment will pay off.
Samsung is slated to release a full financial statement, including net income and divisional breakdowns, around the end of the month.
“We will be looking for signs that this represents a sustainable step change in the company's annual free cash generation,” said Brian Cho, a portfolio manager at Causeway Capital Management, adding that he would also be looking at management's shareholder return policy.
A shortage in memory chips is a key bottleneck for AI development, executives including Nvidia Corp. chief Jensen Huang and OpenAI Chief Operating Officer Brad Lightcap have warned. Manufacturers are giving priority to high-end memory development to meet data centers' needs, leading to inadequate volumes of conventional memory as well.
Analysts expect shortages to last through 2027 at least, giving Samsung and rivals SK Hynix Inc. and Micron Technology Inc. enormous pricing power. DRAM selling prices rose more than 40% in the April-June quarter from the previous three months, while NAND prices jumped more than 50%, according to HSBC.
“Demand is so strong that they are trying to ship more products to their server customers, which typically tends to carry higher margins,” said Sanjeev Rana, head of research at CLSA Securities Korea. The company may be asking for significant price increases from big customers, he said.
Average operating profit margin for the three chipmakers is projected to trend around 75% to 80% in the June quarter, according to market research firm Counterpoint. Such margins may raise concerns about excessive profiteering by memory makers and lead to regulatory pressure if the situation continues, it said in a report.
“I don't think the market adequately understands how good these numbers are,” said Counterpoint Director Tom Kang. Memory price increases were even steeper towards the end of the second quarter, compared with the beginning of the quarter, he said. “The boom will definitely continue in the coming quarters.”
Shares of Samsung, which has broad portfolio of chips and consumer electronic, have underperformed cross-town rival SK Hynix's, which is more focused on high-end memory geared for AI's computation needs. Samsung's shares, which were hurt by a selloff in the five days to Friday, are up around 150% this year, compared with SK Hynix's roughly 250% gain.
The two chipmakers are central to South Korea's ambitions to pull ahead of other countries to take leadership in AI. Samsung Group and SK Group plan to build two chipmaking plants apiece in the nation's southwest for a total of 800 trillion won to expand capacity quickly. The country aims to double its memory production capacity within five years. For 2026, Samsung has announced plans to spend over $70 billion in production capacity expansion and research.
Chipmakers are enjoying an unprecedented rise in demand for the high-bandwidth memory essential to AI accelerators. But the shift in production is in turn fomenting a historic shortage of conventional memory chips that go into most modern devices, squeezing profits and inflating price tags.
Workers in Samsung's chip operations are due to receive bonuses as high as $400,000 this year — a windfall that's escalating a national debate about what constitutes fair compensation.
The results likely reflect an estimated 18 trillion to 20 trillion won in provisions for the bonuses, said CLSA's Rana. “If it wasn't for the provision for bonus, profit would have been much higher,” he said.
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