Samsung's operating profit soars 930% as AI tailwinds drive demand for memory chips

Samsung Electronics said on Tuesday that its operating profit surged more than 930% in the first quarter of 2024, driven by soaring demand for its servers, memory chips and storage used in AI applications.

The company, which struggled in 2023 as the macroeconomic slowdown hurt demand for its products, said its memory chip business returned to profitability, and prices continued to rise, thanks to solid demand for DRAM and NAND chips, high-density SSDs and servers. 

Samsung said total revenue increased 12.8% to KRW 71.2 trillion ($52.2 billion) in the quarter from a year earlier, while net profit rose 330% to KRW 6.75 trillion ($4.88 billion) compared to a year earlier. Operating profit increased to KRW 6.61 trillion ($4.77 billion) in the quarter from KRW 640 billion (about $462 million) a year earlier.

Samsung’s semiconductor business drove the bulk of the improvement, with sales in the division rising to KRW 23.14 trillion ($16.71 billion) in the first quarter, up from KRW 13.73 trillion ($9.92 billion) a year earlier, driven by strong demand for DDR5 chips and storage used for AI servers. The division reported an operating profit of KRW 1.91 trillion ($1.3 billion) in the quarter, compared to an operating loss of KRW 4.58 trillion ($3.3 billion) in the first quarter of 2023, and an operating loss of KRW 2.18 trillion ($1.57 billion) in the fourth quarter of 2023. 

Mass production plans in 2024

Samsung has been keen on catering to the increasing compute power needs of generative AI and the servers needed to host the mountains of data that models are trained on. The company last year said it would double down on producing high-bandwidth memory (HBM) chips that are used in AI, 5G, the Internet of Things (IoT), graphic processing applications, virtual reality and augmented reality systems. These chips provide faster data processing and lower power consumption compared to the traditional NAND memory chips.

In line with that ambition, Samsung on Tuesday said it has begun mass-producing high-performance memory chips, like HBM3E 8H (8-layer) DRAM, as well as V9 NAND chips, typically used in enterprise servers, AI and cloud devices. The company said it also intends to produce HBM3E 12H (12-layer) chips in the second quarter of this year. 

Samsung is the world’s largest memory chip maker and competes with Micron and SK Hynix, a Korean memory chip maker, in the market for HBM chips. Micron kicked off its mass production of 8-layer HBM3E semiconductors in February, and last month at Nvidia’s GTC 2024, SK Hynix said it had also started mass producing HBM3E chips. 

As for its foundry business, Samsung said its development of 3-nanometer and 2-nanometer AI chips is “progressing smoothly.” 

Optimistic forecast

Samsung anticipates demand will remain strong in the second half of this year, buoyed by increasing adoption of generative AI. 

“In the second half of 2024, business conditions are expected to remain positive with demand — mainly around generative AI — holding strong, despite continued volatility relating to macroeconomic trends and geopolitical issues,” the company said in a statement. 

“For servers and storage, the continuous increase in the supply of AI servers and subsequent expansion of associated cloud services will increase demand not only for HBM, but also for conventional servers and storage solutions. Demand for mobile is expected to be stable in the quarter, while PC customers are predicted to be affected by slow seasonality, making them likely to adjust their inventories ahead of new product launches in the second half of the year,” the company said.

Two weeks ago, the Biden administration agreed to award Samsung up to $6.4 billion in direct funding under the CHIPS and Science Act to set up semiconductor factories in Texas. 

The grant will enable the South Korean electronic giant to develop leading-edge chips by investing in two new logic chip plants, an R&D facility, an advanced packaging facility in Taylor, and its existing facility expansion near Austin. Micron and TSMC also are set to receive grants to bolster domestic semiconductor production. 

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