Samsung Electronics has estimated a substantial rise in its first-quarter operating profit, with a more than 10-fold increase from the previous year. The company reported a better-than-expected operating profit of 6.6 trillion won ($4.89 billion) for the quarter ended March 31, up 931% from 640 billion won a year earlier. This surge in operating profit can be attributed to rebounding semiconductor prices, as well as positive response to the new Galaxy S24 smartphones.
The increase in operating profit can be largely attributed to the improvement in the inventory valuation of NAND flash chips, as well as the rise in demand for NAND chips which has led to improved margins. Additionally, the initial response to the new Galaxy S24 smartphones has been positive, with on-device AI technology being a key selling point. The sale of a greater-than-expected portion of the high-margin premium smartphones has also contributed to the rise in operating profit.
Samsung’s chip division, which is traditionally its biggest earner, is expected to report its first quarterly profit in five quarters. This is due to the rebound in memory chip prices, with DRAM chip prices rising about 20% and NAND flash chip prices increasing by 23% to 28% during the first quarter. The bullish outlook for memory chip demand, including the increasing demand for chips such as high-bandwidth memory used in AI chipsets, has resulted in a 29% rise in Samsung shares over the last 12 months.
Influence of Global Market Conditions
The recent 7.2-magnitude earthquake in Taiwan is likely to tighten semiconductor supply, leading memory chip makers like Samsung and SK Hynix to potentially hike prices by a sharper margin than previously planned. This could further boost earnings in the second quarter. Additionally, Samsung’s mobile business is expected to report a solid profit after the launch of the Galaxy S24 smartphones, with an estimated 57 million smartphones shipped during the quarter.
Despite the positive quarterly results, Samsung shares were down 0.5% in early morning trade, in contrast to the wider South Korean market which dropped by 0.4%. This decline in share price may be attributed to the overall market sentiment influenced by Federal Reserve officials’ comments on the need to keep interest rate cuts in check.
Samsung’s first-quarter operating profit rise is a positive indicator of the company’s performance, driven by the recovery in semiconductor prices and strong sales of the Galaxy S24 smartphones. The outlook for the upcoming quarters remains positive, with potential further increases in earnings due to tightening semiconductor supply and continued strong demand for memory chips.