Samsung's Q3 profit seen jumping nine-fold, but chip margins may be flat

Samsung Electronics anticipates a nearly nine-fold increase in third-quarter operating profit, fueled by strong demand for artificial intelligence technologies, despite analysts cutting their forecasts by nearly 8% since late August. The South Korean tech giant anticipates operating profit of 106.1 trillion won ($79.1 billion) for Q3, marking its fourth consecutive record.

This profit jump underscores the prolonged memory shortage, with AI infrastructure demand outpacing supply growth. Analysts predict this shortage will continue into next year and possibly through 2028. While price increases in memory chips have moderated, concerns persist about potential peak chip margins, prompting questions about the longevity of the AI spending boom.

Samsung will unveil preliminary Q3 results on Thursday, with detailed data released in late October. The slowdown in memory prices has attracted investor attention following a one-year rally driven by AI demand, propelling top memory producers to record profits and margins. However, rising chip costs are pressuring smartphone and consumer electronics demand.

Although chip prices have risen 10% to 15% in the fourth quarter, long-term supply agreements have limited gains. TrendForce expects conventional DRAM contract prices to rise 10% to 15% in the final quarter, down from a second-quarter surge of roughly 60%. Suppliers are concerned that steep price hikes could dampen demand across various consumer electronics.

Samsung aims to secure long-term contracts covering about two-thirds of its memory output, following other rivals seeking to mitigate exposure to market fluctuations. However, rising costs may dampen Samsung's memory-chip operating profit margin, which is expected to remain flat at 76% in Q3. The company faces increasing competition from Chinese rivals, which are gaining traction in lower-end products benefiting from the AI-driven shortage.

The Korean won has strengthened by 14.3% against the dollar in Q3, affecting overseas earnings when repatriated. Samsung's shares have declined about 25% from a June record but remain more than double their value at the beginning of the year. To address market challenges, Samsung plans to boost sales of high-bandwidth memory (HBM) chips crucial for AI data centers, with its market share expected to reach 34% this year from 20% last year.