Samsung forecasts record third-quarter profit of $80 billion on the back of AI boom

Samsung Electronics announced on Thursday that its third-quarter operating profit nearly tripled from the previous year, surpassing analysts' expectations. The South Korean tech giant credited the surge in artificial intelligence (AI) chip demand for driving strong memory earnings. Analysts estimate Samsung's operating profit for July-September 2023 at 107.4 trillion won ($80.17 billion), compared to the LSEG SmartEstimate of 106.1 trillion won.

This marks the company's fourth consecutive quarter of record operating profit, up from 12.17 trillion won a year earlier. The booming AI infrastructure demand has outpaced memory chip supply growth, a gap expected to persist through 2027. Prices have skyrocketed due to limited supply of conventional DRAM and NAND chips, coupled with a surge in demand for high-bandwidth memory (HBM), crucial for processing massive amounts of data for AI applications.

Samsung expects its third-quarter revenue to rise by 127% to 195 trillion won from a year ago, with memory chips anticipated to contribute the majority of the earnings boost. Analysts predict supply will continue lagging demand, potentially widening the imbalance in 2027 as AI-related demand absorbs a larger share of global memory capacity.

While conventional DRAM bit shipments are expected to remain relatively stable due to limited inventories, HBM shipments could surge from the prior quarter on robust HBM4 demand. Douglas Kim of Douglas Research Advisory predicts Samsung's HBM bit shipments expanded by nearly 50% quarter-over-quarter in the third quarter. However, the strong South Korean won may have offset some of these gains by reducing the value of dollar-denominated overseas sales when converted into local currency.

The memory chip boom also poses challenges for Samsung's other businesses, especially its smartphone and consumer electronics divisions, which are experiencing increased pressure from higher component costs. Higher memory prices benefit Samsung's semiconductor arm but raise costs for its own smartphones and electronic devices, squeezing margins in those areas.