By Heekyong Yang, Hyunjoo Jin and Joyce Lee
SEOUL, July 7 (Reuters) – Samsung Electronics on Tuesday flagged a 19-fold jump in second-quarter operating profit from a year earlier, surpassing its combined earnings over the past three years, but its shares slid as the results failed to ease concerns about the durability of the AI-driven chip boom.
The world’s largest memory chipmaker estimated April-June operating profit at 89.4 trillion won ($58.44 billion), beating an LSEG SmartEstimate of 87.3 trillion won, according to a regulatory filing. It reported a profit of 4.7 trillion won a year earlier. Revenue would likely rise 129% to 171 trillion won from a year earlier, it said.
Samsung shares nevertheless dropped as much as 7.9% in morning trade, while rival SK Hynix’s shares fell as much as 7.3%, dragging the benchmark KOSPI down 6%.
Analysts attributed the stock’s weakness to some lofty market expectations that profit, spurred by record memory chip prices, could exceed 90 trillion won even after factoring in provisions for staff bonuses, and worries that the rollout of AI data centres may stall.
“Samsung’s strong earnings were widely expected and had largely been priced in after its shares rallied ahead of the results,” said Albert Yong, a managing partner at Petra Capital Management who owns Samsung stock.
“Investors remain concerned about the sustainability of the AI boom and the risk of slower AI infrastructure spending by major U.S. technology firms.”
Memory chip prices continued to climb during the quarter as AI spending broadened beyond high-bandwidth memory (HBM) into conventional DRAM and NAND products.
Samsung’s profit surged even as it set aside funds for sizeable bonuses to its semiconductor workers, as agreed in a wage deal in May linking their pay to operating profit.
“Samsung posted better-than-expected earnings despite bonus-related provisions, as memory prices rose sharply,” said Lee Min-hee, an analyst at BNK Investment & Securities.
Without those provisions, its operating profit would likely have exceeded 100 trillion won, analysts said.
Jeff Kim, head of research at Seoul-based KB Securities-Jefferies, said the memory chip shortage will deepen this year and next year, as capacity growth would be limited while demand would remain strong.
“Samsung’s profit will continue to grow sequentially in the third quarter and fourth quarter. The key is how sharply they will grow,” he said.
Analysts said rapid growth in HBM production has tightened supply of conventional memory products used in smartphones, PCs and enterprise servers, further supporting prices.
Citi Research last week said average selling prices for DRAM and NAND rose 44% and 53% quarter-on-quarter, respectively, in the second quarter.
Analysts also said customers are increasingly seeking longer-term supply agreements, reinforcing expectations that memory prices will remain elevated for longer and benefiting manufacturers such as Samsung with large-scale production capacity.
While Samsung’s memory business is expected to post another quarter of strong earnings, analysts said losses at its foundry and logic chip (LSI) businesses are likely to widen because bonus expenses are allocated across the semiconductor division.
Samsung plans to announce detailed results on July 30, including a breakdown of earnings of each of its business divisions.
RISKS ON THE HORIZON
Looking ahead, analysts said the biggest risk to the memory boom would be a slowdown in AI infrastructure investment. Delays in U.S. data centre construction caused by labour shortages, power constraints or local opposition could eventually weaken demand across the AI hardware supply chain.
Investors have also raised concern that the big technology companies will need to borrow heavily to fund AI infrastructure with uncertain returns, which could also dampen chip demand.
Goldman Sachs said in a recent report it expects combined AI-related capital expenditure by the four largest hyperscalers — Meta, Microsoft, Amazon and Alphabet — to reach $5.3 trillion between fiscal 2025 and 2030, underscoring continued growth in AI infrastructure spending.
While memory has historically been characterised by boom-and-bust cycles, some analysts argue the current sustained growth is becoming more structural as AI demand outpaces the industry’s ability to expand production. Building new memory fabrication plants takes years, limiting supply growth even as hyperscale companies continue to ramp up AI investment.
Samsung last week announced plans to invest 2,100 trillion won in South Korea through 2040, but said spending would be adjusted according to market conditions and business needs.
($1 = 1,529.8100 won)
(Reporting by Heekyong Yang and Joyce Lee; Editing by Sonali Paul)
Comments