Samsung Projects 1,800% Surge in Quarterly Profit Driven by AI Memory Demand

Samsung Electronics, the world's largest memory chipmaker, has forecasted an unprecedented 1,800% increase in its operating profit for the second quarter of 2023, reaching 89.4 trillion won (approximately S$75.7 billion). This figure marks a significant rise from 4.7 trillion won reported in the same quarter last year, and it surpasses analysts' expectations, which had estimated a profit of 87.3 trillion won, according to a regulatory filing on July 7.

This anticipated profit surge is attributed primarily to the booming demand for memory chips driven by artificial intelligence (AI) applications. Analysts from Citi Research noted that prices for dynamic random-access memory (DRAM) and NAND flash memory have seen substantial increases, with average selling prices rising by 44% and 53% quarter-on-quarter, respectively. This price escalation is largely due to heightened AI spending, which has expanded beyond high-bandwidth memory (HBM) to include more conventional memory products used in smartphones, PCs, and enterprise servers.

“Average selling prices for DRAM and NAND rose 44% and 53% quarter-on-quarter, respectively.”Citi Research, analysts

Furthermore, the tight supply of conventional memory products, exacerbated by rapid growth in HBM production, has contributed to the upward pressure on prices. Analysts have observed that customers are increasingly looking for long-term supply agreements, indicating that memory prices are likely to remain elevated for an extended period. This trend is expected to benefit manufacturers like Samsung, which possess large-scale production capabilities.

“Customers are increasingly seeking longer-term supply agreements, reinforcing expectations that memory prices will remain elevated.”Citi Research, analysts

Despite the strong performance in its memory business, analysts caution that Samsung's foundry and logic chip (LSI) divisions may experience widening losses. This is attributed to the allocation of performance bonuses across the semiconductor division, following a pay deal agreed upon in May, which ties bonuses to operating profit.

Samsung plans to provide a comprehensive breakdown of its earnings across various business divisions during its detailed results announcement scheduled for July 30.